Palo Alto pushes Canadian Superior Energy to postpone monetization of some assets

By Lisa Kerner

Charlotte, N.C., Feb. 12 - Palo Alto Investors, LLC asked Canadian Superior Energy, Inc. to hold a public conference call to update shareholders on the financial position and status of the proposed monetization of part of the company's Block 5(c) assets in Trinidad and Tobago.

The investor made its request prior to Canadian Superior's announcement on Thursday that the court has appointed an interim receiver to operate the property in conjunction with BG International Ltd. at a cost to Canadian Superior of up to $47 million.

Palo Alto does not believe the planned monetization is in the company's best interests and asked that any potential deal be postponed, according to a schedule 13D/A filed with the Securities and Exchange Commission.

According to Canadian Superior, it will continue with the monetization of its interest in Block 5(c), applying the proceeds from any sale to its share of the costs charged against Block 5(c) and to discharge the receiver.

Palo Alto has voiced concerns about conflicts of interest between Canadian Superior and Challenger Energy Corp., a vehicle formed to secure financing for the Block 5(C) project and led by Canadian Superior executive chairman Greg Noval. The investor has pushed for Noval's resignation from Canadian Superior's board of directors.

Challenger is now pursuing strategic alternatives, including the sale of its interest in Block 5(c), Palo Alto said.

Challenger payment first

"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," Palo Alto said in a Feb. 11 letter to Canadian Superior included in the SEC filing.

Palo Alto said that selling the two interests in Block 5(c) simultaneously "suggests that Canadian Superior will not yet have been paid the amounts Challenger owes it under the joint operating agreement 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," Palo Alto said.

Palo Alto, a long-term investor in Canadian Superior, owns 15,752,500 shares, or 9.3%, of the company's common shares outstanding.

Based in Calgary, Alta., Canadian Superior is a crude oil and natural gas exploration and production company with an emphasis on exploring for and producing crude oil and natural gas in western Canada, Nova Scotia and Trinidad and Tobago.

Mentioned in this article:

Canadian Superior Energy Inc. AMEX: SNG

Challenger Energy Corp. AMEX: CHQ

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