Steelhead Partners requests Information from Canadian Superior Board



    SEATTLE, Oct. 8 /CNW/ - Steelhead Partners, LLC ("Steelhead ") announced
today that it has sent a letter to the Board of Directors of Canadian Superior
Energy Inc. (TSX:SNG) ("Canadian Superior") requesting information regarding
Canadian Superior's provision of a $14 million bridge loan to Challenger
Energy, a company in which Canadian Superior's Chairman has a significant
financial interest. A copy of the letter is attached below.
    Steelhead Partners, LLC, is the investment manager of investment limited
partnerships and client accounts who beneficially hold over 19 million shares
in Canadian Superior, assuming the exercise of common share purchase warrants
held by them. These shares represent approximately 12.9% of the outstanding
shares of Canadian Superior's common stock.

    Founded in 1996, Steelhead Partners, LLC is an SEC-registered investment
adviser based in Seattle, Washington.

    
    October 8, 2008

    To the Board of Directors of Canadian Superior Energy Inc.:
    

    Steelhead Partners, LLC, is the investment manager of investment limited
partnerships and client accounts who beneficially hold over 19 million shares
in Canadian Superior. These shares represent approximately 12.9% of the
outstanding shares of Canadian Superior's common stock.
    On September 26, 2008, we sent you a letter (a copy of which is attached
to this letter as Exhibit A) concerning the fact that Canadian Superior Energy
Inc. was considering providing a bridge financing facility to Challenger
Energy Corp. In that letter, we questioned whether the Canadian Superior
directors would be properly discharging their fiduciary duties to
Canadian Superior and its shareholders if they decided to approve funding of
up to $14 million of Challenger's obligations to Canadian Superior for the
expenses related to the drilling program in Trinidad & Tobago.

    Our letter asked two direct questions:

    First, how could providing a loan to Challenger be deemed to be in the
best interests of Canadian Superior and its shareholders, in particular given
that Challenger was created with the sole purpose of providing funding for the
three well drilling program in Trinidad & Tobago?
    Second, how in approving such a transaction could the directors reconcile
what appears to be a very significant conflict of interest that results from
on the one hand, Greg Noval's sizeable financial interest in Challenger and
his position as Chairman of Challenger, and on the other, his position as
Chairman of Canadian Superior?
    As of today, these important questions have not been answered and we have
not received any direct response from Canadian Superior or from any other
members of the Canadian Superior Board of Directors. Instead, as we see from
Challenger's filings on SEDAR, the Board has approved the bridge facility.
    Given the maelstrom that has paralyzed the credit markets, essentially
shutting them down internationally, we cannot understand why the Board
approved reducing its own cash reserves by extending credit to Challenger. No
explanation has been provided to shareholders as to how the bridge facility
could be deemed to be in the interests of Canadian Superior and its
shareholders. As previously stated, we did not agree to invest new equity
capital in Canadian Superior to fund the operations of Challenger. We invested
to help Canadian Superior fund its own expenses in Tunisia/Libya, Liberty and
Trinidad because we understood that those projects would not be able to move
forward in an expeditious manner without additional liquidity / funding.
    In light of the approval of the bridge facility, and the conflict of
interest issues referred to above, we are left with significant questions
about how the members of the Canadian Superior board fulfilled their fiduciary
obligations to act with a view to the best interests of Canadian Superior and
its shareholders. To help us resolve these questions, we need the Board of
Directors to answer the following questions immediately:

    1. What process was followed in approving the bridge facility? Why was
the transaction considered reasonable and fair to the company and its
shareholders? Which directors approved the transaction and which directors
abstained from voting on it? Please provide us a copy of the minutes from the
board meeting at which this transaction was approved.

    2. What other interested party transactions have been approved by the
Board of Directors in the last 12 months? What was the process used in
approving these prior transactions? Has the Board developed a different
process for approving interested party transactions in the future?

    3. From the filings Challenger made in connection with its offering, it
appears that Challenger currently owes Canadian Superior $16.5 million for the
expenses related to the Bounty Well and an additional $4.6 million with
respect to costs incurred to date on the Endeavour Well. In addition, it
appears that Challenger will owe an additional $6 million to $8 million to
Canadian Superior in early 2009 with respect to the Endeavour Well and will
owe a total of approximately $24.8 million for all expenses related to
Endeavour. Finally, it appears Challenger owes Canadian Superior $28.0 million
with respect to the Victory Well. What is the current status of Challenger's
obligations to Canadian Superior? Has Challenger used the proceeds from its
recent public offering to meet its current obligations? If not, when are
amounts owing to Canadian Superior expected to be paid? Has Challenger
borrowed any funds from the bridge facility to satisfy its obligations to
Canadian Superior? Has Challenger disclosed all amounts it will owe to
Canadian Superior going forward?

    4. It appears that Challenger was only able to raise the minimum amount
of its offering, receiving approximately $28 million in net proceeds. What
considerations have been made with respect to Challenger's ability to meet its
short term and long term future expense obligations? Given the amount that
Challenger currently owes as well as the amount it will owe in the future, how
was the Board convinced that Challenger was a good credit risk? Was there any
indication that Challenger can be expected to raise the remaining funds it
owes to Canadian Superior as well as to raise sufficient funds to repay the
$14 million bridge facility?

    5. The terms of both the Participation Agreement and the Farmout and
Option Agreement between the companies provide that the agreements terminate
with no further action on behalf of the parties immediately on Challenger's
failure to pay its share of expenses when they are due. What process was
followed by the Board in approving waivers of Challenger's defaults under
these agreements when it previously failed to pay its share of expenses as
they became due? What consideration has Canadian Superior received in exchange
for granting these waivers? Why did the Board conclude that granting a waiver
of these breaches was fair and reasonable and in the best interests of
Canadian Superior?

    6. Finally, what processes have been implemented to handle the conflict
of interest that exists with Mr. Noval's current role with Canadian Superior?

    We continue to be supportive of Canadian Superior and we believe in the
management team that CEO Craig McKinzie has put together and the opportunities
that they have in front of them. On the other hand, we believe that
significant harm can come to a company and its shareholders if the directors
fail to properly discharge their fiduciary duties.
    We raised important questions to the Board prior to its approval of the
bridge facility, but we do not feel that those questions were addressed
adequately (or perhaps at all). In order to ensure that shareholders are
protected going forward, we believe that the questions raised above need to be
addressed immediately. Accordingly, please provide us with answers to the
foregoing questions prior to the close of business on Friday, October 10,
2008. Given the importance of the questions, please feel to provide any
information and answers you may have as they become available. If we do not
hear from you by that date, we will be forced to consider all options legally
available to us. We look forward to hearing from you.


    
                                                                  Sincerely,


                                                        J. Michael Johnston
                                                               J.D. Kritser
    





For further information:

For further information: Steelhead Partners, LLC at (206) 689-2450

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STEELHEAD PARTNERS, LLC

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