Why bid BGI go to court to have a receiver appointed? The following is stated in the original Joint Operating Agreement (JOA) for the administration of Block 5(C):

CEC = Challenger Energy

CSEI = Canadian Superior

BGI = British Gas

"(a) Art. 3.2(C) — CEC shall not have a Participating Interest until it has been assigned an interest in the Contract by CSEI. As between BGI and CSEI, prior to such assignment, CSEI shall be fully responsible for all obligations and liabilities inrespect of a 70% Participating Interest and BGI shall under no circumstances be required to enforce, or make a claim in respect of, any obligation or liability of CEC.

(b) Art. 4.2(B)(3) — in the conduct of Joint Operations, the Operator shall exercisedue care with respect to the receipt, payment and accounting of funds in accordance with good and prudent practices as are generally followed by the international petroleum industry under similar circumstances;

(c) Art. 4.2(B)(4) — subject to Article 4.6 and the Accounting Procedure, the Operatorshall neither gain a profit nor suffer a loss as a result of being the Operator in its conduct of Joint Operations;

(d) Art. 4.2(B)(8) — in the conduct of Joint Operations, the Operator shall undertaketo maintain the Contract in full force and effect in accordance with such good andprudent petroleum industry practices as are generally followed by the international petroleum industry under similar circumstances. Operator shall timely pay and discharge all liabilities and expenses incurred in connection with Joint Operations and use its reasonable endeavors to keep and maintain the Joint Property free from all liens, charges and encumbrances arising out of Joint Operations;

(e) Art. 4.8 — Operator may not commingle with Operator’s own funds the monieswhich Operator receives from or for the Joint Account pursuant to this Agreement. Monies Operator receives for the Joint Account shall be deposited inan interest-bearing account. Interest earned shall be allocated among the Partieson an equitable basis taking into account the date of the funding by each Party andits share of the Joint Account monies. Operator shall apply such earned interest tothe next succeeding cash call or, if directed by the Operating Committee, pay it tothe Parties;

(f) Art. 8.1(A) — any party that fails to: (1) pay when due its share of Joint Accountexpenses (including cash advances and interest), or (2) obtain and maintain any Security required of such Party under the Contract or this Agreement; shall be indefault under this Agreement (a “Defaulting Party”). Operator, or any nondefaultingParty, in case Operator is the Defaulting Party, shall promptly give notice of such default (the “Default Notice”) to the Defaulting Party and each of the non-defaulting Parties; and

(g) Art. 8.4(E)(1) — each party grants to each of the other Parties, in pro rata sharesbased on their relative Participating Interest, a mortgage and security interest on its Participating Interest, whether now owned or hereafter acquired, together with all products and proceeds derived from that Participating Interest (collectively, the“Collateral”) as security for (i) the payment of all amounts owing by such Party(including interest and costs of collection) under this Agreement; and (ii) any Security which such Party is required to provide under the Contract

CSEI DEFAULT

22. During November and December 2008, BGI conducted an audit of the Joint Venture Operator as it was entitled to do under the JOA. Among other things, at pages 18 and 19 the audit revealed that contrary to the JOA:

(a) CSEI failed to maintain separate bank accounts;

(b) CSEI commingled BGI’s funds with CSEI’s funds; and

(c) CSEI did not account for interest as obliged under Article 4.8 of the JOA and the

Accounting Procedure (as defined in the JOA). Now shown to me and marked as

Exhibit “7” is a copy of the audit report.

23. Maersk (as hereinafter defined) is the drilling contractor hired by CSEI under the Rig Contract (as hereinafter defined). At the end of January 2009, BGI received copies of correspondence between Maersk and CSEI indicating that Maersk’s November invoice for US $12,075,000.00, which was due for payment on January 2, 2009, had not been paid (the “Maersk November Invoice”) and demanding that CSEI pay same. A copy of letters dated January 26, 2009 and January 30, 2009 from Maersk to CSEI are attached to this Affidavit and as Exhibits “8” and “9”, respectively (the “Maersk Letters”).

24. On February 1, 2009, BGI demanded an urgent Operating Committee Meeting (“0CM”) for February 2,2009. At the 0CM, BGI demanded that CSEI explain why the Joint Venture was unable to pay the Maersk November Invoice, especially given that BGI has paid to CSEI for the Joint Account all cash calls made to it. CSEI advised BGI that CEC had failed to pay its cash calls and CSEI stated that it was not in a position to pay approximately US $4 million which was charged to CEC in connection with the Maersk November invoice. When asked about the extent

and duration of CEC’s failures to pay, CSEI did not provide a satisfactory answer. BGI requested that the following information be provided as soon as possible (the “Inquiries”):

• how much money is in the Joint Account presently?

• how much money is required to finish the Joint Operations?

• how long has CEC not paid its Joint Account obligations?

• how much debt is the Joint Venture in?

• what was the exact amount outstanding to Maersk and a statement as to all other

outstanding bills.

25. Formal minutes of the February 2, 2009 0CM have not yet been issued. However, BGI’s internal record from the meeting are attached and marked as Exhibit “10”.

26. BGI did not receive an adequate response from CSEI to the Inquiries. Accordingly, BGI sent a letter to CSEI on February 5, 2009, restating the Inquiries concerning the financial status of the joint venture. The February 5, 2009 letter is attached to this Affidavit and marked as Exhibit “1 1”. As of the timing of swearing of this Affidavit, no response has been received from CSEI.

27. On February 2, 2009, at a meeting between Ben Milner of BGI, Don Boykiw of Osler, Hoskin & Harcourt LLP, and Dan MacDonald, Chief Executive Officer of CEC (“MacDonald”), MacDonald advised that a letter had been received from the Minister rejecting the assignment of a 25% interest in the PSC from CSEI to CEC. He further advised that not having legal title was inhibiting CEC’s ability to raise funds. MacDonald did not specify the reasons for the rejection.

28. On February 5, 2009, BGI also sent a letter to CSEI requesting information regarding the status of assignment of a 25% Participating Interest in the PSC from CSEI to CEC. BGI further advised CSEI that until it was advised to the contrary and in accordance with Art. 3.2(C) of the JOA, BGI held CSEI responsible for all obligations and liabilities in respect of a 70% Participating Interest pursuant to the terms of the JOA. The February 5, 2009 letter is attached to this Affidavit and marked as Exhibit “12”. As of the timing of swearing of this Affidavit, no response to same has been received.

29. On February 6, 2009, pursuant to the JOA, BGI delivered to CSEI a notice of default and notice of removal of operator. CEC was provided copies of both notices. Copies of the notice of default and notice of removal of operator are attached to this Affidavit and marked as Exhibits “13” and “14”, respectively.

30. On or about February 8, 2009, BGI prepared a Request for Arbitration (the “Request”), pursuant to Article 18 of the JOA, for filing with the London Court of International Arbitration (“LCIA”) in London, U.K.

http://www.deloitte.com/dtt/cda/doc/...

Well I learned a lot from this affadavit. It lays out the JOA and the responsibilities of Canadian Superior Energy as operator of the block with a 70% controlling interest and BGI's responsibilities with 30% controlling interest. It also states for the first time that Challenger Energy has no title to Bloc 5(C) as the Minister of Energy in Trinidad

did not transfer to CEC (Challenger Energy) a 25% share of the block which is proven in the following statement by Challenger's CEO Dan MacDonald: "MacDonald advised that a letter had been received from the Minister rejecting the assignment of a 25% interest in the PSC from CSEI to CEC. He further advised that not having legal title was inhibiting CEC’s ability to raise funds."

So Challenger it appears currently has no standing as to having a position in Block 5(C) and according to the Joint Operating Agreement (JOA), Canadian Superior may not receive it's 70% controlling interest if it is in violation of the JOA as according to Articles 8.1(A) and 8.4(E)1 as shown in the following quotes:

(f) Art. 8.1(A) — any party that fails to: (1) pay when due its share of Joint Account expenses (including cash advances and interest), or (2) obtain and maintain any Security required of such Party under the Contract or this Agreement; shall be in default under this Agreement (a “Defaulting Party”). Operator, or any nondefaulting Party, in case Operator is the Defaulting Party, shall promptly give notice of such default (the “Default Notice”) to the Defaulting Party and each of the non-defaulting Parties; and

(g) Art. 8.4(E)(1) — each party grants to each of the other Parties, in pro rata shares based on their relative Participating Interest, a mortgage and security interest on its Participating Interest, whether now owned or hereafter acquired, together with all products and proceeds derived from that Participating Interest (collectively, the “Collateral”) as security for (i) the payment of all amounts owing by such Party (including interest and costs of collection) under this Agreement; and (ii) any Security which such Party is required to provide under the Contract

So in the end does British Gas end up getting Block 5(C) esentially for nothing more then paying off the exisiting bills at the end of the flow testing? That is the legal question that no body is raising on the other boards.

Best Wishes; Scott