Palo Alto Investors Questions Monetization of Canadian Superior’s Trinidad Assets
February 12 2009 - 1:01PM
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) (AMEX:SNG) 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�).
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.
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