News from The Globe and Mail

Canadian Superior battle heats up

NATHAN VANDERKLIPPE

00:00 EDT Wednesday, March 18, 2009

CALGARY -- A disgruntled U.S. investment firm has made its most open assault yet on Calgary oil explorer Canadian Superior Energy Inc., as the two square off in a battle prompted by a potentially huge Caribbean natural gas find.

In a letter sent to the embattled company on Monday, major shareholder Palo Alto Investors outlined the terms of financing it says it can help secure. Canadian Superior has already opted to sell a share in Block 5(c), a natural gas exploration area off Trinidad, to raise much-needed cash.

As part of that package, the California-based fund says the board, currently chaired by storied Calgary oilman Greg Noval, must go.

According to Canadian Superior, its Block 5(c) could contain as much as four trillion cubic feet of natural gas, an amount equal to one-tenth of Alberta's gas reserves. But the company fell into bankruptcy protection after it ran out of money, prompting Canadian Western Bank to call a $45-million loan last month.

Canadian Superior subsequently announced plans to sell a 25-per-cent share of its own 45-per-cent interest in that block (although, in the fractious dispute over the company, even that figure is disputed).

Palo Alto is pushing the company to pursue other alternatives to what it characterizes as a fire sale that will not attain an adequate value for a property it believes carries a huge value.

"We want the board to look at all options, and there's been no evidence that the company is pursuing those options," said David Anderson, Palo Alto's head of energy research.

In its letter, Palo Alto outlined terms of $60-million in notes, at 15-per-cent interest, it can help Canadian Superior acquire. The notes would be convertible into common shares at $1 (U.S.) apiece.

The financing would also require that Palo Alto and the note holders be allowed to place between five and seven new directors on Canadian Superior's seven-member board.

Canadian Superior did not respond to a request for comment, but in an e-mail sent to Mr. Anderson, Mr. Noval demanded that the investment firm "please quit continuing screwing us around!" and accused Palo Alto of "grandstanding."

The Canadian Superior board chose to pursue an asset sale "for the benefit of the company and shareholders" after seeking extensive legal advice, Mr. Noval wrote.

"In case you do not know it we and industry are experiencing the worst economic times in modern history," he continued. "Your actions do nothing positive for the company."

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