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The Oil & Gas Commerce Building

309 West Seventh Street, Suite 1600

Fort Worth, TX  76102

USA

Phone (US) 817-698-0900    Fax
817-698-0796    Toll Free 1-877-698-0900

April 4, 2005

Ms. Tia Jenkins

United States Securities and
Exchange Commission

450 Fifth Street, N.W.

Washington, D.C. 20549

Dear Ms. Jenkins:

We have reviewed the comments of the reviewing Staff
of the Commission set forth in a comment letter dated March 21, 2005.  We appreciate the opportunity to respond to
the Staff’s comments and respond as follows.

June 30, 2004 Form 10-KSB

Acquisition of Davenport

SEC’s Comment:

1.               Based upon the description of the
transaction, it appears that the acquisition of Davenport on May 24, 2004
should be presented as a reverse acquisition and reflected in the financial
statements as a recapitalization.  The
acquisition is equivalent to the issuance of stock by Davenport for the net
monetary assets of the public shell corporation, accompanied by a
recapitalization.   The accounting is
identical to that resulting from a reverse acquisition except no goodwill or
other intangible asset should be recorded.
For accounting purposes, Davenport is the acquirer.

Cano’s Response:

We respectfully disagree
with the Staff’s position that this merger should be reflected as a reverse
acquisition.  In determining our
accounting for the merger transaction, we based our conclusion on the
provisions of Statement of Financial Accounting Standards No. 141 (“SFAS 141”),
which provides accounting guidance for the application of the purchase
method.  To determine the acquiring
entity, we specifically relied on paragraphs 16 and 17a of SFAS 141, as
follows:

Paragraph 16 specifies that the “…the entity
that distributes cash or other assets or incurs liabilities is generally the acquiring
entity.”

As stated in Note 2 to the
financial statements of our 10-KSB, “…we [Cano Petroleum] acquired 100% of
Davenport Field Unit’s outstanding common stock in exchange for the issuance by
us of 5,165,000 shares of our common stock to the Davenport Field Unit
shareholders and we agreed to place the sum of $1,650,000 into escrow to be
disbursed as follows: (1) $428,015 to Cano Energy Corporation as a
reimbursement of costs associated with the Davenport field; (2) $355,646 in
connection with a note that we assumed held by Bluebonnet Resources
Corporation; and (3) $866,339 toward field improvements and drilling on the
Davenport Property.”  Note 2 further
analyzed the purchase price as follows:

  Calculation of purchase price:

  Cano Petroleum common stock (5,165,000
  shares)

  $

  2,324,250

  Asset retirement obligation

  83,582

  Notes payable to Bluebonnet Resources

  355,646

  Reimbursement to Cano Energy

  428,015

  Total purchase price

  $

  3,191,493

  Allocation of purchase price:

  Accounts receivable from Cano Energy

  $

  4,000

  Deferred compensation

  2,324,250

  Oil and gas properties

  762,000

  Cash

  77

  Goodwill

  101,166

  Total allocation of purchase price

  $

  3,191,493

We believe this merger
transaction was essentially achieved via the distribution of cash by Cano
Petroleum to the Davenport Field Unit shareholders.  The 5,165,000 shares of stock issued to the
Davenport shareholders is classified as deferred compensation and was not considered
in determining the fair market value of the Davenport Field Unit, as shown in
the above table.  The common shares
issued by Cano Petroleum are currently being held in escrow and will be
released to the individuals if certain goals are achieved pertaining to their
continued employment and performance, as discussed in Item 5 of the
10-KSB.  The $1,650,000 cash placed in
escrow was used, in part, to pay the liabilities assumed by Cano Petroleum for
the Notes Payable to Bluebonnet Resources amounting to $355,646 and the
$428,015 reimbursement due to Cano Energy.

Since Cano Petroleum
distributed the cash to satisfy the assumed liabilities, we concluded that Cano
Petroleum is the acquiring entity.

Paragraph 17a specifies that: “The
relative voting rights in the combined entity after the combination – all else
being equal, the acquiring entity is the combining entity whose owners as a
group retained or received the larger portion of the voting rights in the
combined entity.”

As stated in our balance
sheet in the Form 10-KSB, our total common shares issued and outstanding are
15,647,204 shares, of which 5,165,000 shares (33%) are contingently held in
escrow.  As previously discussed, these
shares will be released when certain service and performance goals are
met.  The current executive officers of
Cano hold 5,010,050 of these escrowed shares, as discussed in Item 5 of the
Form 10-KSB.  The escrowed shares, if
fully vested, would represent 33% of the total issued shares, as compared to
the remaining 67% being held by the former shareholders of Huron Ventures, Inc.
(predecessor to Cano Petroleum).  Since
the vast majority of shares (67%) are held by the former Huron shareholders,
who still retain voting control, we concluded that Cano Petroleum is the acquiring
entity.

SEC’s Comment:

2.               The financial statements should present the
historical operations of Davenport prior to the merger.  The Davenport stockholders’ equity section
should be retroactively restated to give effect to the legal structure of the
former Huron Ventures with an offsetting entry to additional paid in
capital.  The retained earnings/deficit
of Davenport should be carried forward and adjusted for any transaction
costs.  The issuance of common shares should
be recorded at book value rather than fair value.  We note the Company has recorded goodwill
from the transactions and the financial statements do not reflect the
accumulated deficit and results of operations for Davenport prior to the
transactions.  Please revise the
financial statements and related data to eliminate goodwill and adjust the
equity accounts as indicated.  Include
footnote disclosure describing the accounting and reporting for the
recapitalization.

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Cano’s Response:

We respectfully disagree
with this comment since we do not believe this was a reverse acquisition.  Please refer to our response to comment no.
1.

SEC’s Comment:

3.               Please file a revised Form 10-KSB that
includes a discussion of the reverse acquisition and the effects of the
restatement on the financial statements.
All of the historical disclosure required by Regulation S-B should be
provided for Davenport as if it were the registrant.  The auditors’ report on the financial
statements should make reference to the fact that the financial statements are
restated.  Pro forma disclosures for a
recapitalization transaction may not be material.  Commencing with the periodic reports for the
year in which the Merger was consummated, all reports should be filed based on
the fiscal year of Davenport.  The
company’s subsequent Exchange Act Reports should be revised so as to conform to
the above-described presentation.

Cano’s Response:

We respectfully disagree
with this comment since we do not believe this was a reverse acquisition.  Please refer to our response to comment no.
1.

September 30, 2004 Form 10-QSB/A
and December 31, 2004 Form 10-QSB

SEC’s Comment:

4.               Please expand Note 3 to explain why the
acquisition of Ladder was effective May 1, 2004 yet does not appear to have
been reflected in the company’s June 30, 2004 Form 10-KSB.

Cano’s Response:

As discussed in Note 3, we
did not close the transaction until July 2, 2004.  Since the close date is subsequent to June
30, 2004, our financial statements do not reflect the effects of the Ladder
acquisition.

The purchase and sell
agreement provided that Cano was entitled to the net operating income generated
by Ladder from May 1, 2004 through the closing date of the acquisition.  As part of the final purchase price determination
to close on July 2, 2004, the net operating income earned by Ladder from May 1,
2004 through the July 2, 2004 was applied as an adjustment to the purchase
price of the acquisition.

We believe our financial
statements and accompanying footnotes accurately reflect the correct accounting
treatment for the merger.  We trust that
the foregoing appropriately addresses the issues raised by your recent comment
letter.  If you have any questions, do
not hesitate to contact me directly at 817-698-0900.

  Sincerely,

  /s/
  Michael J. Ricketts

  Michael J. Ricketts

  Chief Financial Officer
  and

    Principal
  Accounting Officer

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