PALO ALTO, Calif.--(BUSINESS WIRE)--Palo Alto Investors, LLC, an investment advisory firm, sent a letter on the evening of February 11, 2009 to the Board of Directors of Canadian Superior Energy, Inc. ("Canadian Superior", the "Company") (TSX: SNG - News) (AMEX:SNG - News) questioning the timing and strategy of the company’s proposed monetization of part of its Block 5(c) assets in Trinidad and Tobago (“the property”). http://finance.yahoo.com/news/Palo-A...

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This letter was sent prior to today’s announcement by the Company that an interim Receiver has been appointed to operate the property in conjunction with BG International Limited (“BG”).

Palo Alto Investors has requested additional disclosure by the Company with regard to its financial position and the status of the project and has requested that the Company hold a public conference call to update shareholders.

The text of the letter follows:

To the Board of Directors of Canadian Superior,

This week, Canadian Superior Energy Inc. (“Canadian Superior” or “the Company”) announced its intention to monetize a portion of its ownership in the Intrepid Block 5(c) offshore Trinidad and Tobago. We understand the Company is in the process of retaining a financial advisor to assist in the sale of the asset. Palo Alto Investors, LLC, a significant shareholder in Canadian Superior, believes monetization of Block 5(c) is not in the best interests of the Company at this time and we request that any potential deal be postponed until further alternatives are evaluated. We also request a public conference call for shareholders to hear management’s current view on operations and strategy as it pertains to these key assets in Trinidad.

Canadian Superior’s announcement comes less than one week after the announcement by Challenger Energy Corp. (“Challenger”) that it is pursuing strategic alternatives, which would include the sale of its interest in Block 5(c). Palo Alto Investors has previously criticized the conflicts of interest that have arisen in transactions involving Canadian Superior and Challenger. In the absence of additional information, Palo Alto Investors believes the coincident nature of these two announcements further highlights the continuing conflict of interest arising from Mr. Greg Noval's 10% ownership interest in Challenger and his position as Chairman of the Board of Canadian Superior.

Palo Alto Investors has previously requested that the Company enhance its Board of Directors to include individuals with significant international oil and gas experience. The Board of Directors has taken no action with regard to this suggestion, and has since lost the services of former CEO Craig McKenzie, one of the few members of the board who had such experience. We believe the significant project that Canadian Superior is pursuing in Trinidad requires deep knowledge of LNG development strategies and the international business contacts and acumen to pursue the proper courses of action to maximize stakeholder returns. Without further clarification of Canadian Superior’s strategy and financial position, we believe that selling this asset now, immediately after the exploration phase and before ultimate project sanction, is not in the best interests of Canadian Superior or its shareholders.

As noted above, Canadian Superior’s partner in Block 5(c), Challenger, announced its intention to pursue strategic alternatives last week. With Challenger, and its 25% interest in Block 5(c), available to a buyer, we recognize that Canadian Superior’s offering of 25% or more of Block 5(c) right now provides a potential buyer the ability to aggregate a position of more than 50%. Clearly, this may attract buyers and may maximize the value of Challenger’s interest, but it does not necessarily maximize Canadian Superior’s value. The difference is that Canadian Superior has other assets and operations and Challenger does not, which allows for strategies that may significantly differ between the two companies. It is our opinion that this may be another situation where the conflicts of interest inherent in the Chairman of the Board’s ownership of Challenger have the potential to impact decisions of the board of Canadian Superior.

Moreover, Challenger announced that it intends to use the proceeds of its sale to pay amounts owed to Canadian Superior. Therefore, selling the two interests simultaneously suggests that Canadian Superior will not yet have been paid the amounts Challenger owes it under the Joint Operating Agreement (“the JOA”) and under the $14 million Bridge Note provided to Challenger by Canadian Superior since September 2008. Canadian Superior will be in a much better financial and negotiating position, relative to its own interest in Block 5(c), after Challenger has fulfilled its obligations for payments under the JOA and the Bridge Note.

We request that the Company provide full disclosure of its existing farm-out agreement with Challenger and the Intrepid Block 5(c) offshore Trinidad and Tobago agreement, which as non-ordinary course material contracts, should be part of the public record of both companies. In addition, to give shareholders a better understanding of the transactions, we believe the Company should provide complete disclosure of the ownership structure of the Liberty LNG Joint Venture and all other worldwide projects being pursued by the Company in which Directors or Company employees have an ownership interest.

We request that Canadian Superior host a conference call, open to all shareholders and the public, to discuss the status of operations in Trinidad and the overall strategy for development and, the reasons and justification for the proposed monetization. We believe that communication is necessary at this crucial juncture given the important strategic nature of these assets, and we believe the independent directors of Canadian Superior should be included in that call. Until such a discussion takes place, we do not believe any transaction involving the Trinidad assets should be pursued. We believe the Canadian Superior board owes an answer to shareholders on this topic. Should you choose to proceed with the proposed monetization, we would anticipate exploring all avenues of recourse available to us at that time.

We await your prompt response.

Sincerely,

David J. Anderson

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.