Issues Open Letter to Company`s Board of Directors, Alleges "Failings,
Misconduct and Inadequate Corporate Governance"
PALO ALTO, Calif.--(Business Wire)--
Palo Alto Investors, LLC, an investment advisory firm, today issued the
following Open Letter to the Board and Shareholders of Canadian Superior Energy,
Inc. (TSX:SNG) (AMEX:SNG): 

Open Letter to the Board and Shareholders of Canadian Superior Energy Inc.

Palo Alto Demands Better Governance

Palo Alto Investors, LLC ("PAI") provides this open letter to the Board of
Directors and shareholders of Canadian Superior Energy Inc. ("Canadian Superior"
or the "Company") to further expose the failings, misconduct and inadequate
corporate governance of the current Board and again demand that the Board be
reconstituted to include truly independent Directors with relevant international
oil and gas expertise. 

We believe that a new Board will ensure that the Company is effectively equipped
for future success, particularly as it emerges from court-approved creditor
protection. As further documented below, the existing Board has failed in its
duties to shareholders, including:

* the management of the Company`s key growth asset (Block 5(c) in Trinidad) has
been placed in the hands of a court-appointed receiver; 
* the Company itself has sought and obtained protection from its creditors
pursuant to the Companies Creditors` Arrangement Act (the "CCAA"); and 
* Challenger Energy Corp. ("Challenger") (CDNX:CHQ.V), a company of which Mr.
Greg Noval, Canadian Superior`s Executive Chairman, is the largest shareholder,
was inappropriately loaned $14 million by Canadian Superior in September 2008,
and now Challenger itself has also sought and obtained creditor protection under
the CCAA.

The key driver of our desire to reconstitute the Board is the need to remove the
Company`s Executive Chairman, Greg Noval, who has insurmountable conflicts of
interest which are described in greater detail below. 

For the reasons described below, on February 17, 2009, PAI requisitioned a
meeting of shareholders to consider PAI`s alternative slate of directors. PAI
will be preparing a dissident proxy circular which will set out its alternative
slate of directors for election at the Annual and Special Meeting of
shareholders of the Company called for June 26, 2009. The dissident proxy
circular will be publicly filed and will be mailed to all shareholders. This
open letter to shareholders is intended to highlight some of the significant
concerns and issues that we will be explaining in greater detail in our
dissident proxy circular. 

PAI is a Committed Long-Term Shareholder

PAI has been a significant shareholder of the Company since 2003. PAI has
consistently invested in the Company`s equity financings, including its August
2005 offering, the proceeds of which were used to pay the Company`s costs for
the acquisition, drilling and development of the Block 5(c) project in Trinidad
and Tobago. PAI has since provided continued assistance to the Company, both
through participating in subsequent financings and sharing its industry contacts
with management, as PAI believes in the Company`s strategy of exploration in
Trinidad. Most recently, PAI participated in the Company`s September 2008 equity
offering, which raised $35 million to fund the Block 5(c) drilling program. 

PAI owns 15,752,500 common shares of Canadian Superior, representing 9.3% of the
Company`s outstanding shares. As such, PAI is one of the Company`s largest
shareholders. 

Chairman Noval`s Conflict of Interest

Unfortunately, since September 2008, PAI has been forced to actively address the
significant ongoing conflict of interest of the Company`s Executive Chairman
Greg Noval. This conflict, along with the complicity and failure by the
Company`s Board of Directors to adopt and enforce appropriate and necessary
governance controls for a public company, makes it impossible for the existing
Board to act in the best interests of Canadian Superior shareholders. Mr.
Noval`s conflicts of interest include:

* Mr. Noval is the Executive Chairman of Canadian Superior, giving him
significant influence over the Board. As a principal of the Company, we believe
he is also authorized to execute contracts, make hiring decisions and spend the
Company`s funds with limited oversight. Mr. Noval owns or controls 480,044
Canadian Superior shares, representing only 0.03% of the issued and outstanding
shares of Canadian Superior. 
* Mr. Noval is the founder of, and a significant investor in, Challenger, with
which the Company has entered into certain imprudent commercial arrangements, as
more fully described below. Based on public information, Mr. Noval owns or
controls 4,306,200 shares of Challenger, representing approximately 10.1% of the
issued and outstanding shares of Challenger. Based on public filings, Mr. Noval
also owns warrants and options entitling him to acquire up to 1,000,000
additional Challenger shares at varying prices, which, if exercised, would
increase his ownership interest in Challenger to 12.4%. 
* Until October 23, 2008, Mr. Noval was also the Chairman of the Board of
Directors of Challenger, meaning that at the time of the bridge loan made by
Canadian Superior to Challenger, as described below, Mr. Noval was Chairman of
the Board of both Canadian Superior and Challenger.

In PAI`s view, Mr. Noval`s financial interest in Challenger has caused him to
put the interests of Challenger before the interests of Canadian Superior, to
the significant detriment of the Company`s stakeholders. The Board has been
complicit in Mr. Noval`s actions. 

The Deal with Challenger

Challenger was originally established as a financing vehicle to assist with the
development of the Company`s Block 5(c) project in Trinidad. Challenger was
created by Mr. Noval, and he was the initial major shareholder. 

In 2005, the Company accepted an offer from Challenger of a
"third-for-a-quarter", or 33% of development expenses for a 25% ownership
interest in Block 5(c), and executed an Amended and Restated Participation
Agreement with Challenger (the "Participation Agreement"). At that time,
Challenger had no other assets, no operating history and no management team.
Canadian Superior indicated to PAI that it preferred Challenger`s offer to at
least one higher offer as Challenger was willing to (i) forego having its 25%
Working Interest in Block 5(c) assigned to it until after the completion of
payments on a three-well exploration program, and (ii) potentially participate
in the drilling of another offshore well near Nova Scotia. 

Mr. Noval then used the award of the Trinidad drilling option as the basis for
raising money in Challenger and ultimately taking it public on the TSX in Canada
and the AMEX in the United States. The differentiating aspects of Challenger`s
offer, which were the reasons given by the Company to PAI for choosing
Challenger as a partner, have not to date been fulfilled. 

As 2008 unfolded, the damage from the agreement with Challenger, and the extent
of Mr. Noval`s unchecked conflict, became clear to us. Challenger has failed to
live up to its commitments to Canadian Superior under the Participation
Agreement and under the bridge loan. Challenger is now in CCAA creditor
protection. Throughout 2008 and to today, Mr. Noval`s interests have become
increasingly unaligned with the interests of Canadian Superior and its
shareholders. 

The Bridge Loan to Challenger

In September 2008, PAI assisted the Company with a new $35 million equity
financing. The proceeds of the offering were to be used by the Company to fund
the ongoing Trinidad work, a new joint venture in Libya and Tunisia, and the
Liberty LNG project. At the time, both Steelhead Partners, LLC (an institutional
shareholder) and PAI encouraged the Company to first collect all outstanding
monies due from Challenger under the Participation Agreement, which in August
2008 represented approximately $20 million. With Challenger current in its
payments, we believed Canadian Superior would obtain a better offering price in
the market and minimize shareholder dilution. 

Challenger, however, was in the midst of its own equity offering to fund its
commitments to Canadian Superior under the Participation Agreement. As
Challenger was having difficulty securing commitments to reach the minimum $44
million it required, Challenger indicated to the Company that it would be unable
to repay the outstanding $20 million at that time. In order to support Canadian
Superior, Steelhead, PAI and Talkot Partners funded the $35 million Canadian
Superior financing in early September with the Challenger balance still
outstanding. 

By late September, Challenger had still not received enough commitments to
complete its $44 million offering. PAI was then contacted by Blackmont Capital
in Calgary, the investment dealer brokering the Challenger financing
transaction. Blackmont indicated to PAI that Challenger had only secured
approximately $30 million in equity commitments for Challenger at a price of
$3.00 per share. 

At this point, with Challenger months behind in its payments under the
Participation Agreement, and given Challenger`s inability to raise capital, we
believe it should have been clear to the Canadian Superior Board that Challenger
would not be financially able to meet its commitments on Block 5(c). In our
opinion, the Board should have immediately given notice to Challenger of its
default under the Participation Agreement and also under the Block 5(c) Joint
Operating Agreement (the "JOA") among the Company, Challenger and BG
International Limited ("BGI"). This would have been the customary course of
action when dealing on an arm`s-length basis with a defaulting third party. We
believe that had the Company taken that action, it would have forced Challenger
to lower the price of its equity offering and attract the entire $44 million
investment. Instead, on September 23, 2008, Michael Coolen, then President of
the Company, signed an agreement to provide a $14 million "Bridge Facility" to
Challenger, available until December 31, 2008. 

The Company`s Governance Process Failed During "Approval" of the Bridge Loan to
Challenger

Subsequent to September 23, 2008, PAI was contacted again by Blackmont with the
"good news" that Challenger`s equity financing would close because Canadian
Superior had agreed to provide the Bridge Facility to cover the remaining
balance. This development was very disturbing, as prudent lenders are not
generally in the habit of providing loans to shore up equity offerings for their
defaulting debtors. PAI and other shareholders immediately contacted the Company
to explain that:

* this Bridge Facility was not in the best interests of Canadian Superior`s
shareholders; 
* we believed it was merely a strategy to avoid shareholder dilution at
Challenger (thereby benefitting Mr. Noval given his 10.1% plus interest in
Challenger); and 
* the $35 million we had injected into Canadian Superior just two weeks earlier
was clearly not intended to be used for this purpose.

During these discussions, it became apparent to PAI that several Canadian
Superior Board members were unaware of the Bridge Facility transaction. Yet, on
September 23, 2008, without the approval of the Board, but following discussions
with Mr. Noval, Mr. Coolen delivered the executed Bridge Facility agreement to
Challenger (the "Bridge Facility Agreement"). This was accomplished even though
it is our understanding that Mr. Coolen had signing authority at Canadian
Superior for no more than $750,000 at the time. Despite the apparent
significance of the Bridge Facility Agreement, Canadian Superior failed to
disclose the agreement in its public disclosure filings in the U.S. or Canada.
It is worth noting that Challenger did disclose the Bridge Facility Agreement in
a September 25, 2008 filing on SEDAR; we believe that at the time of that filing
the Canadian Superior Board had not yet approved the agreement. 

PAI understands that Mr. Coolen and Mr. Noval spent several days attempting to
persuade the Board to approve the Bridge Facility by unanimous written consent.
It is also our understanding that several Directors refused to approve the
agreement, and that the Company`s CFO, Robert Thompson, had significant
misgivings about the transaction, including its potential impact on Canadian
Superior`s demand credit facility with Canadian Western Bank (the "Demand Credit
Facility"). 

Having failed to obtain unanimous written consent, Mr. Noval then called a Board
meeting to approve the Bridge Facility, which would require approval by only a
simple majority rather than unanimity. This Board meeting took place on
September 29, 2008, three days after the signed Bridge Facility Agreement had
already been publicly disclosed by Challenger in its SEDAR filing. While, in
addition to the Directors, the meeting was attended by representatives of
Blackmont Capital and Challenger, we understand that Canadian Superior`s CFO was
not in attendance. It is our understanding that the Board approved the Bridge
Facility Agreement by a vote of 5-to-3. 

There is to our knowledge no evidence that Mr. Noval recused himself from
discussion of the transaction, as is required by the Company`s own Code of
Conduct when a Director has a conflict of interest. Furthermore, the Alberta
Business Corporations Act requires that Mr. Noval should have disclosed in
writing to the Canadian Superior Board, or have written into the minutes, his
interest in Challenger. We again note that Mr. Noval was, at the time, Chairman
of Challenger`s Board of Directors and Challenger`s largest shareholder. 

We believe the absence of Mr. Robert Thompson, the Company's CFO, from this
critical Board meeting contributed to the failure of the Board to consider the
impact of the Bridge Facility on the Demand Credit Facility. The Company's
lender Canadian Western Bank ("CWB"), has since brought an action to enforce
repayment of the Demand Credit Facility through the appointment of a receiver
over all the assets (with the exception of the Block 5(c) assets) of the Company
(the "CWB Action"). The CWB Action has been adjourned until May 4, 2009 and is
currently subject to the CCAA stay of proceedings against the Company. While CWB
has brought this action as a result of the Company`s failure to pay, CWB has
indicated that the Bridge Facility Agreement breached the Company's covenants
under the Demand Credit Facility. The Demand Credit Facility contained a
negative covenant which prohibited Canadian Superior from making material
investments which were outside its normal course of business or outside the
western Canada sedimentary basin. In the affidavit of Mr. John Plant, Assistant
Vice-President, Energy Lending with CWB sworn March 5, 2009 and filed in
connection with the CWB Action, Mr. Plant states that the Company "lent
$14,000,000.00 to [Challenger] for [Challenger] to invest in the Trinidad and
Tobago project, effectively investing indirectly in that project, which [the
Company] had agreed not to do with CWB". This is, unfortunately, another example
of Canadian Superior misusing funds entrusted to it and its shareholders, for
the benefit of Challenger. In his affidavit, Mr. Plant also notes Mr. Noval`s
conflict of interest. 

The Demand Credit Facility with CWB, while clearly a material contract of
Canadian Superior, has not been filed on SEDAR as required by law. 

PAI`s Efforts to Improve Governance and the Board`s Failures

PAI (and other shareholders) were incensed at these actions of Mr. Noval and the
Board. On September 29, 2008, PAI sent a letter to the Board requesting the
resignation of Mr. Noval. That letter was filed as an attachment to a PAI Form
13-D filing with the SEC in the U.S. Immediate discussions among PAI, the Board
and Mr. Noval then took place. As a result of these discussions, the Company
claimed to PAI that it would undertake to develop and implement new controls to
govern Mr. Noval`s conflict of interest, including the establishment of a
committee of independent Directors to oversee all related-party transactions. 

Other Canadian Superior shareholders began to voice objections to the Bridge
Facility. Steelhead Partners, LLC filed a comprehensive letter discussing the
many issues and concerns raised by the conflicted arrangement. We believed that
Steelhead`s views were well-considered and now appear prescient in light of the
liquidity crisis faced by the Company. 

Mr. Noval provided the Company`s response to Steelhead`s concerns. The tone of
Mr. Noval`s response was dismissive, belligerent and offensive to shareholders.
The inability of the Board to rein in Mr. Noval during this period was a clear
indication to PAI that the new controls promised by the Board would have little
chance of success. 

Mr. Noval`s ill-tempered response to Steelhead prompted PAI to place renewed
focus on investigating the Company`s governance structure. In subsequent
discussions with certain of the independent Directors, PAI found a glaring lack
of familiarity with governance processes and controls at the Board and
management levels. In our view, the Directors we met with:

* could provide us with no formal delegations of authority, 
* did not understand the reporting structure of the Company, 
* had not been privy to the Company`s key agreements in Trinidad related to
Block 5(c), 
* were unfamiliar with an appropriate concept of materiality as it pertained to
the assets and agreements of the Company, 
* had not been apprised of issues raised by the Company`s auditors, and 
* did not understand that it was the Audit Committee`s responsibility to oversee
related-party transactions.

As a result, PAI concluded that the Chairman`s conflict of interest was not the
only issue with the Company. The Board appeared to be ignorant as to their role
and duties as directors of a public company, and apathetic or indifferent as to
their responsibilities with respect to Mr. Noval`s conflicts of interest. PAI
does not believe that these same Directors are willing or able to stand up to
Mr. Noval and his obvious conflicts and hold him accountable. We are also
concerned by the nature of the relationship that some of these Directors have
with Mr. Noval and their apparent loyalty to him. 

PAI has continued to impress on the independent Directors (including at a
meeting with the independent Directors on February 20, 2009) the significant
concerns that PAI and other shareholders have with the past conduct of the Board
and the continuing conflict of interest of Mr. Noval. Certain of Canadian
Superior`s independent Directors (including Mr. Rick Watkins and Mr. Alex
Squires) have been in contact with PAI regarding our concern that the Board make
an informed and unconflicted decision as to what the right course of action is
to extract the Company from CCAA protection and the BGI receivership action,
with a view to the best interests of all shareholders. While it appears that
Mssrs. Watkins and Squires are trying hard to protect shareholder interests in
the CCAA action, we at PAI remain concerned that these are only two votes out of
seven directors, and that Mr. Noval`s influence over the remainder of the Board,
could lead to a result that is clearly not in the best interests of Canadian
Superior and its shareholders. 

Other Noval Conflicts of Interest

In addition to Mr. Noval`s significant conflict of interest with regard to
Challenger, we would note the following additional conflicts of interest that
further highlight PAI`s concerns that Mr. Noval`s interests are not properly
aligned with the interests of Canadian Superior shareholders:

* One of Canadian Superior`s assets is the Liberty Natural Gas Project
("Liberty") in the New York/New Jersey area. Liberty is structured as a joint
venture to be operated by a company known as Excalibur Energy (U.S.A.) Inc.
("Excalibur"), with Canadian Superior and Global LNG Inc. ("Global") each
holding a 50% interest in Excalibur. Based on publicly available information, we
understand that Global is controlled by Greg Noval. 
* Canadian Superior manages the payroll of Hughes Air Corp. ("Hughes"). Hughes
is a company that is controlled by Mr. Noval. The Hughes payroll has typically
been advanced by Canadian Superior. There is approximately $17,000 owed to
Canadian Superior by Hughes. 
* The Monitor appointed by the court in connection with Canadian Superior`s CCAA
creditor protection has reported that "Canadian Superior and Challenger have had
initial discussions regarding the possibility of a joint marketing effort in
light of the fact both parties are independently engaged in a marketing process
in respect of Block 5(c)". As described elsewhere herein, jointly marketing a
50% interest in Block 5(c) would serve to significantly benefit Challenger (and
thereby Mr. Noval as the largest shareholder of Challenger) since it would
facilitate a sale of control of Block 5(c) to a third party.

PAI Has Demanded that the Board be Reconstituted and Mr. Noval Replaced

On November 5, 2008, PAI sent a letter to the Board of Directors outlining our
governance review and views of what the Company needed to address. That letter
is Exhibit F to PAI`s 13-D amendment filed with the SEC on November 6, 2008. In
that letter, PAI stated that "we believe that all shareholders would
significantly benefit from the Board taking further steps to mitigate or
eliminate the impact of all real and perceived conflicts of interest while
avoiding further transactions that create or exacerbate such conflicts." 

Mismanagement Has Pushed Canadian Superior into Financial Distress

The Company is now in significant financial distress, the causes of which stem
from poor Board oversight and the conflicted dealings of Mr. Noval. In the past
six weeks, there have been numerous developments evidencing the lack of informed
and independent leadership at Canadian Superior:

* In the fall of 2008, CWB had become concerned about the Company's ability to
repay the amounts owed under the Demand Credit Facility. On October 3, 2008, CWB
wrote to the Company advising that it did not anticipate remaining the Company's
lender "indefinitely into the future" and that the Company should "take
initiatives to obtain alternate financing, with such financing to be in place
and repayment made to CWB on or before December 31, 2008". The Company has to
date failed to secure such alternate financing, even after CWB provided
extensions to March 31, 2009. 
* On February 9, 2009, BGI sued Canadian Superior, alleging that the Company
breached the terms of the JOA and, on February 11, 2009, an Interim Receivership
Order ("IRO") was granted appointing a receiver over the Company's rights and
interests in the Block 5(c) Trinidad project (a significant segment of the
Company's operations). In its application, among other matters, BGI alleged that
in breach of the JOA, Canadian Superior had (i) improperly commingled BGI`s
funds with Canadian Superior`s funds, and (ii) not paid the drilling contractor
on Block 5(c) thereby running the risk of delaying the drilling program up to a
year and causing irreparable harm and economic loss. The IRO was upheld by the
Alberta Court of Appeal. During the IRO application and subsequent appeal, the
Company repeatedly has advised that it cannot meet its commitments under the JOA
and expects BGI to make all such payments on its behalf as the non-defaulting
party. 
* Challenger`s failure to honor its obligations to Canadian Superior regarding
the costs of Block 5(c) (which failure aggregated more than US$23.5 million),
resulted in Canadian Superior breaching its obligations to BGI under the JOA
thereby leading to the IRO. 
* Challenger has admitted that it is now insolvent and is unable to repay the
$14 million Bridge Facility Agreement. Challenger filed for and obtained
protection from its creditors under the CCAA on February 27, 2009. Note that
Challenger`s primary creditor is Canadian Superior under the Bridge Facility
Agreement and the Block 5(c) cost sharing arrangements. 
* On February 12, 2009, CWB delivered to the Company a Demand and a Notice of
Intention to Enforce Security pursuant to Section 244(1) of the Bankruptcy and
Insolvency Act.
* The Company is in default of its obligations under the Demand Credit Facility.
The Company is currently indebted to CWB for approximately $35 million. 
* CWB and BGI have repeatedly expressed concerns and doubts with respect to the
management of the Company. CWB has stated that "CWB and others have lost all
confidence in [Canadian Superior] and its management".

As a result of the Company's mismanagement, on March 5, 2009, Canadian Superior
also filed for and obtained protection from its creditors under the CCAA. CWB
has stated that it will not support any plan of arrangement under the CCAA and
has brought the CWB Action to appoint a receiver over the Company`s assets. PAI
believes a liquidation of the Company will result in the disposition of its
assets at fire sale prices, a disastrous result for Canadian Superior
shareholders. 

Further Evidence of Mr. Noval`s Conflict Has Come to Light in Challenger`s CCAA
Proceedings

Upon our review of Challenger`s CCAA filings, PAI is troubled by evidence that
Canadian Superior inappropriately attempted to transfer assets to Challenger.
Item 9 of the February 27, 2009 Affidavit filed by Dan McDonald in Challenger`s
CCAA proceeding provides: 

9. Pursuant to Article 3.2(c) of the JOA, [Challenger] has obtained an undivided
25% Participating interest under the JOA by virtue of an executed deed of
assignment dated June 6, 2008 executed by [Canadian Superior] in respect of the
Participating Interest.On September 23, 2008, BGI executed and delivered to
[Canadian Superior] and [Challenger] a Consent to Assign.

Even though the exploration program had not been completed (and Challenger had
not yet fulfilled its obligations to Canadian Superior under the Participation
Agreement), Canadian Superior`s management signed an agreement to transfer
ownership of the asset and assign a 25% interest in Block 5(c) to Challenger. 

The attempted assignment was (fortuitously for Canadian Superior shareholders)
rejected by the Trinidad Ministry of Energy. Item 10 in Mr. McDonald`s affidavit
provides: 

…By letter dated January 6, 2009, the Ministry advised [Canadian Superior] that
it was not prepared to consent to the assignment on the basis of the stated
concern that [Challenger] may not be able to meet its financial obligations
under the PSC.

Three days later, Canadian Superior finally put Challenger on notice that the
$14 million advanced under the Bridge Facility Agreement was due and payable.
Yet Canadian Superior still did not give formal notice to Challenger that
Challenger was in default under the Participation Agreement. 

The Company`s Proposed Sale of Block 5(c)

On February 10, 2009, Canadian Superior announced that it proposed to monetize a
25% or larger interest in Block 5(c). However, PAI believes this new strategy is
also tainted by Mr. Noval's conflicted desire to sell concurrently Challenger's
interest in Block 5(c). 

PAI`s most recent letter to the Company on March 16, 2009 implored the Company
and its Board to review all alternatives in this time of illiquidity. If a sale
of Block 5(c) can generate a significant return at this point, PAI would be the
happiest of all shareholders, and we would potentially support such a
transaction. However, we question, given the existing Board, Mr. Noval`s
continuing conflict of interest and the Board`s prior failures as described
herein, whether the cash generated from that sale would, in fact, be utilized
for the benefit of the Company and its shareholders. Furthermore, without more
clarity from the Company, PAI and other shareholders cannot assess the benefits
of such a sale and the other available options. 

While a sale of Block 5(c) may realize a significant gain for the Company, we
cannot be certain that such a transaction can be completed and no back-up plan
has been publicly identified. Furthermore, PAI believes that there may be a more
opportune time to sell Block 5(c) - that is, if the Company maintains maximum
ownership today, completes a development plan, establishes gas off-take
agreements and obtains project financing commitments for the development. With a
minimal new capital investment relative to the amount spent to date, PAI
believes the Company can significantly enhance the saleability of the Block 5(c)
interest to multiple potential buyers. This would enable the Company to effect
the sale at a time when the Company is not hamstrung by receivership, a CCAA
action of its own, and questions over Challenger`s interest in the assets and
its ability to pay its bills. Furthermore, without more clarity from the Company
regarding the potential proceeds from a sale, PAI and other shareholders cannot
assess the benefits of such a sale and the other available options. 

In an attempt to do what is best for all shareholders, on March 16, 2009, PAI
submitted to the Board an indicative term sheet reflecting an alternative
financing transaction that PAI believes is available to Canadian Superior from
third parties. Based on CWB`s public statement regarding management and
governance issues, and the Company`s inability since October to secure a new
bank line, we believe significant governance changes are required to attract and
retain a valid bank facility. This should be a primary focus of the Board in
order to protect shareholders, because the establishment of a new bank facility
in a refinancing ensures that further dilution from asset sales or share
issuances would be minimized. Alongside a valid bank line, the remaining capital
can take on an appropriate structure, and PAI believes that $60 to $150 million
may be available, in addition to amounts available to pursue ongoing
development, if the Company would merely engage in discussions with capital
providers. PAI notes that if Challenger were to pay its portion of the amounts
outstanding to BGI under the JOA, the amount of new capital that Canadian
Superior would need to draw under a new facility would be significantly
decreased, thereby limiting shareholder dilution. To date, based on publicly
available information and our ongoing dialogue with certain independent
Directors, we believe the Board has yet to consider actively or explore such a
financing arrangement, and continues to be solely focused on monetizing Block
5(c). 

PAI has only requested that the Company pursue all options; we have not defined
which one is best. 

The Company`s Woeful Disclosure Record

PAI believes that shareholders and regulators should take notice of the woeful
disclosure record of Canadian Superior, further evidence of the failures of the
Board and the callous disregard for the interests of Canadian Superior`s
shareholders. Some examples of the failings of the Canadian Superior Board in
complying with timely disclosure obligations under Canadian and U.S. securities
laws include:

* Material Contracts Not Filed. As noted herein, neither the Demand Credit
Facility with CWB dated July 25, 2005 nor the Bridge Facility Agreement with
Challenger dated September 23, 2008 were filed by Canadian Superior on SEDAR or
EDGAR, despite the legal requirement that reporting issuers file, on a timely
basis, any material contract to which they are a party. In addition, none of the
contracts related to the Block 5(c) assets, such as the Participation Agreement
and the JOA, all of which are clearly material to the Company, have been
publicly filed. PAI only obtained copies of these contracts as a result of the
aforementioned court proceedings. 
* No Timely Disclosure of Material Changes. Reporting issuers in Canada are
required to provide immediate disclosure of any event or change in its business
or capital that would reasonably be expected to have a significant effect on the
market price of its securities. Based on the court filings, PAI learned that CWB
had notified the Company that it was in default under the CWB credit agreement
as early as February 12, 2009; however, the Company only reported to the market
on February 17, 2009 that CWB had demanded repayment of its loan. Further, the
Block 5(c) court receivership proceedings indicate that BGI had notified
Canadian Superior that it was in material breach of the JOA on February 6, 2009;
however, Canadian Superior only notified the market of the issues under the JOA
upon the application to court by BGI for the appointment of a receiver over
Block 5(c) on February 12, 2009.

PAI Once Again Calls for New Leadership

PAI`s assessment is clear: the Board has failed to protect the interests of
Canadian Superior`s shareholders. In our opinion, Mr. Noval has been and
continues to direct the business of Canadian Superior to focus primarily on
enhancing the value of his investment in Challenger. The Board has been
complicit in his actions. 

PAI has spent significant time and money recruiting a potential alternative
Board of leading oil and gas professionals from some of the largest companies in
the world. PAI is not seeking to appoint any PAI employees or affiliates to the
Board. PAI`s candidates have significant Board experience, oil and gas industry
project expertise and financial experience, and would be equipped to take the
Company to the next level. We will provide further detail on our candidates in
the weeks to come. 

We are shareholders. We are not activists. But we cannot sit idly by while
mismanagement destroys the value of an asset we have watched grow from an idea
to fruition. Like all shareholders, we seek to have our financial investment
protected by a Board that understands and honors its fiduciary duties and that
cares about shareholders. We implore the current Board of Directors of Canadian
Superior to take action for the benefit of shareholders at this crucial time. 

Sincerely, 

Palo Alto Investors, LLC 

About Palo Alto Investors

Since its inception in 1989, Palo Alto Investors, LLC ("PAI") has focused
exclusively on overlooked, misunderstood and undervalued segments of the equity
markets. PAI is committed to providing world class money management services to
high net worth and institutional investors. Located in Palo Alto, Calif., PAI
employs 22 professionals and manages over $1 billion in assets. The firm is
independently owned with significant Partner ownership interest. 

The following information is provided for purposes of Part 9 of National
Instrument 51-102 - Continuous Disclosure Obligations. PAI expects to prepare
and file a dissident proxy circular for the purpose of soliciting proxies on its
own behalf in support of an alternate slate of nominees for election as
directors of Canadian Superior, Suite 3200, 500 - 4th Avenue SW, Calgary,
Alberta, T2P 2V6, at the Annual and Special Meeting of shareholders of Canadian
Superior requisitioned by PAI on February 17, 2009 and called by Canadian
Superior for June 26, 2009. PAI has not yet finalized its slate of nominees.
Proxies may be solicited by mail, telephone, fax or other electronic means and
in person, as well as by newspaper or other media advertising, or by a proxy
solicitation agent retained by PAI for such purpose. Any proxy given in respect
of PAI`s nominees, for which detailed information will be provided when
available as required by applicable securities laws, may be revoked in any
manner permitted by law or as instructed in PAI`s dissident proxy circular. Any
costs of solicitation will be borne by PAI. 





Walek & Associates
Mary Beth Kissane, 212-590-0536 



Copyright Business Wire 2009