UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 8-K

CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported)     February 15, 2007

Cano Petroleum, Inc.
(Exact Name of Registrant as Specified in Its Charter)

Delaware
(State or Other Jurisdiction of Incorporation)

(817) 698-0900
(Registrant’s Telephone Number, Including Area Code)

Not Applicable
(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o            Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o            Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o            Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o            Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

2.03                        Creation of a Direct Financial Obligation or an Obligation Under an Off-Balance Sheet Arrangement of the Registrant

Drawdown under $100,000,000 Credit Agreement

On February 15, 2007, Cano Petroleum, Inc. (“Cano”) increased its aggregate borrowings under its currently existing $100,000,000 Credit Agreement (the “Credit Agreement”) among Cano Petroleum, Inc., as borrower, and Union Bank of California, N.A. and Natixis, as lenders, to $10 million.  On March 5, 2007, Cano increased its aggregate borrowings under the Credit Agreement to $17 million.  On March 29, 2007, Cano increased its aggregate borrowings to $21.5 million.  The interest rate on the amount borrowed fluctuates based on the LIBOR rate plus the applicable margin which ranges from 1.75% - 2.50% based on the utilization level.  The interest rate on March 29, 2007 was 7.07%.  No principal is due until November 29, 2009.  A portion of the interest payment was due on March 30, 2007 and the remaining interest payment dates are April 5, 2007, April 16, 2007 and April 30, 2007.  If the principal is not repaid on those dates, the term and the interest rate of the applicable borrowing may be modified with the term being up to 12 months from the aforementioned dates with interest payments being due at least every 90 days thereafter.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.