Canadian Superior Posts Record 2003 Operating Results

"High Impact". These two words capture the spirit of Canadian Superior's vision for development of significant value in holdings Offshore Nova Scotia, Offshore Trinidad and in Western Canada. 2003 was a busy year marked by the achievement of a series of important milestones. Offshore Nova Scotia, Canadian Superior (the "Company" or the "Corporation"), along with our joint venture partner El Paso Oil and Gas Canada Inc. ("El Paso"), planned for and commenced drilling of the first "Mariner Project" exploration well directly offsetting ExxonMobil's Venture natural gas field. Spudding of this well occurred on November 20, 2003. This well was drilling less than two years after obtaining the "Mariner" exploration licence, a significant achievement that is a credit to the experienced Canadian Superior planning and technical teams. We also successfully acquired two new offshore exploration licenses, adding 370,881 acres of prime exploration territory, increasing our Offshore Nova Scotia holdings to 1,293,946 acres in six exploration licences. In Trinidad, we established a significant joint venture with the Petroleum Company of Trinidad and Tobago Limited ("Petrotrin") encompassing attractive shallow offshore lands off the East Coast of Trinidad. We plan to increase our activities and our presence in Trinidad during 2004. Our existing Trinidad joint venture lands are on-trend with the large recently discovered BHP Billiton/TotalFinaElf/Talisman Energy Angostura and Aventura Carapal Ridge oil and gas fields and represents a new "World Class" opportunity for Canadian Superior. In Western Canada we added significant core production assets with the March 20, 2003 acquisition of El Paso's Drumheller area assets for approximately $65 million ($53.5 million net of production credits from October 1, 2002 to closing and other closing adjustments). This was one of the better acquisitions in Western Canada in 2003, with a purchase price equating to $20,576 per flowing boe/d, compared to recent production asset transaction prices of as much as $50,000 per flowing boe/d (Oil and Gas Investor, April 2004). The Drumheller area acquisition added significant new production and provided valuable additions to our land inventory that contain a good balance of identified conventional exploration and development targets.

Highlights of 2003 include:

  • Revenues of $31.6 million, up 308% compared to 2002.
  • Cash flow from operations of $13.3 million, up 1,570% compared to 2002.
  • Record average production of 2,285 boe/d, up 170% compared to 2002.
  • Acquisition of a significant new core area at Drumheller, Alberta for $65 million ($53.5 million net of adjustments).
  • $84 million in capital expenditures with $71.6 directed to Western Canadian assets, $7.8 directed to Offshore Nova Scotia and Trinidad activities and $4.6 million to other expenditures.
  • Secured agreement from El Paso for a significant farm-in on our "Mariner Project" lands. This agreement follows up on our 2002 "Marquis" project with El Paso and allows El Paso, upon satisfaction of all conditions, to earn a 50% working interest in our "Mariner" lands in return for coverage of two-thirds of the cost of the first "Mariner Project" exploration well.
  • Secured a significant Trinidad joint venture focusing on attractive shallow offshore lands on-trend with recently discovered large oil and gas fields.
  • Planned and commenced drilling of our second Offshore Nova Scotia exploration well, Canadian Superior El Paso "Mariner" I-85 exploration well, located on our "Mariner Project" lands.
  • Drilled sixteen Western Canadian exploration and development wells with a 94% success rate.
  • In excess of $79 million in new equity financings completed in 2003 to support aggressive acquisition and drilling activities.
  • Active community involvement: education, training and oil and gas research and development in Nova Scotia; cancer research in Alberta; and major rural sponsorship of various projects including the Western Canadian 4H on Parade, one of the largest 4H farm shows in Canada, and the Calgary Stampede.

  • In managing our Offshore Nova Scotia holdings, technical and management teams from Canadian Superior and El Paso worked tirelessly and methodically through to November 2003 to complete detailed planning for our first "Mariner Project" exploration well. All required Canada-Nova Scotia Offshore Petroleum Board ("CNSOPB") approvals were obtained on an aggressive schedule that required a strong level of coordination and effort from the Canadian Superior and El Paso teams. This allowed us to commence "Mariner" I-85 exploration drilling operations on time in November. The "Mariner" I-85 exploration well was drilled in a challenging high temperature, high pressure environment, utilizing the latest in drilling technology, and reached a total depth of approximately 5,408 metres (17,743 feet) to evaluate the first of three large structures identified for drilling on the "Mariner Project" exploration licence. As announced on March 11, 2004, the "Mariner" I-85 exploration well encountered gas pay in multiple zones as targeted. The factual accuracy of Canadian Superior's March 11, 2004 news release has been confirmed on numerous occasions by El Paso.

    Also Offshore Nova Scotia, consistent with our stated objective of increasing our holdings in the Offshore Nova Scotia area, Canadian Superior successfully participated in the exploration licence land sale in 2003. In November 2003, the CNSOPB notified Canadian Superior that it was the successful bidder for two new exploration licences in the Sable Island area close to existing discoveries. These exploration licences, named "Marauder" and "Marconi", cover 370,881 acres, were acquired in return for work expenditures bids aggregating to $14.1 million, and contain several excellent seismically defined prospects.

    In Trinidad, during 2003 Canadian Superior was successful in securing a significant joint venture covering a large, shallow offshore license (55,000 acres). This joint venture holding with Petrotrin has the potential to establish significant oil and gas reserves in the heart of a known hydrocarbons-bearing structural trend. Efforts to increase our presence in Trinidad continued into 2004 with our bid for Production Sharing Contracts covering two Blocks located off the east coast of Trinidad, in the Trinidad and Tobago Ministry of Energy & Energy Industries' 2003/2004 Competitive Bid Round.

    In relation to financing our high impact plays, it continues to be our strategy to maintain a strong balance sheet and to minimize our own financial outlay requirements wherever possible through joint ventures with partners at different phases of the exploration cycle. Where high impact explorations expenditures require funding beyond the limits of our internally generated cash flow, we continue to successfully source equity financing at appropriate times. Even where the potential rewards are large we are not prepared to compromise our balance sheet by over-extending ourselves. By using this disciplined approach to defining value in high impact prospects, we will endeavor to ensure that we continue to realize a high level of value in any joint ventures we enter into with partners.

    In Western Canada, our objective over the past year has been to increase cash flow through expanded production to support our pursuit of "home run" opportunities for shareholders. We succeeded in achieving this through the El Paso acquisition in Drumheller, and moved forward with an aggressive oil and gas development drilling program in the Drumheller area during the third quarter of 2003 to add new production. By year-end, we had achieved a 92% success rate in the drilling of thirteen new Drumheller area oil and gas wells. Of the thirteen wells drilled during the third and fourth quarters, twelve wells were completed and six wells were placed on-stream during 2003 and were producing at an estimated combined 2003 exit production rate of approximately 237 boe/d. The remaining six wells were placed on-stream early in the first quarter of 2004 and added an estimated 750 boe/d to production. Drilling activities continued into 2004 with the drilling of four successful oil and gas wells during the first quarter. Drumheller will remain the focus of our conventional exploitation activities in Western Canada in 2004. Six additional wells are to be drilled to complete the first major drilling phase of our Drumheller area exploration and development program. Attention will also shift to horizontal drilling and a water flood proposed for the Mannville"I" Pool, exploration in untouched deeper drilling horizons and coal bed methane ("CBM") development at Drumheller. Drumheller is ideally suited for CBM exploration and production. At recent Drumheller Area land sales, CBM acreage has gone for $250,000 per section (approximately $390 per acre) and we have approximately 108 net sections (69,120 acres) in the Horseshoe Canyon CBM rich coal zones.


    Our corporate growth strategy during 2004 will be directed at, and framed by, the following items:

  • We intend to continue forward with further drilling of our "World Class" Offshore Nova Scotia holdings.
  • We intend to proceed with further drilling on our "Mariner Project" lands. Three large prospective structures have been identified with only one drilled to date.
  • We plan to conduct 3-D seismic acquisition on the "Marquis" lands with the objective of advancing a second exploration.
  • In relation to our "Mayflower" lands, we are working to secure a joint venture partner to shoot seismic and we intend to move ahead with drilling targets identified on the "Mayflower" block as quickly as possible. A Confidentiality Agreement is in place between Canadian Superior and a potential partner.
  • In relation to "Marauder" and "Marconi", we have identified a number of excellent seismically defined prospects and we intend to seek further joint venture partners to shoot additional seismic aimed at establishing drilling locations, and to complete the necessary front end regulatory approval activities in support of our planned exploration activities.
  • We will continue to leverage the expertise we have developed Offshore Nova Scotia into other "World Class" basins. An example of this is the securing of a significant joint venture with the Petroleum Company of Trinidad and Tobago Limited, covering 55,000 acres of near shore acreage, a "World Class" opportunity. Efforts to increase our presence offshore Trinidad opportunities will continue throughout 2004.
  • We will continue development of our strategic core production assets in the Drumheller area of Alberta. With the near completion of our first phase of Drumheller area drilling operations, our attention will shift to horizontal drilling and a proposed waterflood for the Mannville"I" Pool, exploration in untouched deeper drilling horizons and CBM development.
  • Further exploration and development in high impact exploration areas such as East Ladyfern will be conducted in 2004.
  • We will continue to ensure that balance sheet strength is maintained in order to properly balance high impact project risk.
  • We are on-watch for opportunities to expand our core corporate interests through strategic acquisitions.

  • OUTLOOK - 2004 and Longer Term

    Our strategic Corporate Objectives for sustainable growth are:

  • To continue to grow Western Canadian cash flow and production base focusing on the Drumheller area and high impact Western Canadian plays
  • To maintain a strong balance sheet
  • To target exiting 2004 with production of 5,000+ boe/d of oil, NGLs and natural gas
  • To continue forward with drilling and development of "World Class" projects Offshore Nova Scotia and Offshore Trinidad to deliver home runs for shareholders
  • To continue to expand underlying value for shareholders through the drill bit and by strategic acquisitions

  • We expect to continue with programs initiated in 2003 to increase Western Canadian cash flow and production focusing on the Drumheller area and high impact Western Canadian plays. These activities will complement the high impact opportunities we intend to continue to pursue for our shareholders Offshore Nova Scotia and in Trinidad. This strategy, complemented by the continued strong support of our shareholders, evidenced in the consistently active trading of our shares, combined with buoyant equity capital markets during 2003, allowed us to fund high impact capital projects without compromising the integrity of our balance sheet. In particular, it allowed us to optimize our position in our "Mariner Project" working interest of 50% by providing the money required to fund a one-third share of estimated costs of the first "Mariner" exploration well that spudded on November 20, 2003. As a result, Canadian Superior successfully ended 2003 holding assets with "World Class Home Run" potential Offshore Nova Scotia and in Trinidad, and we expanded our solid Western Canadian cash flow and asset base.

    Over the longer term, we intend to continue to increase the value of our corporate assets through the drill bit, by strategic acquisition, and by continuing to maintain high working interests and a strong balance sheet, while aggressively developing our newly acquired Trinidad interests and our "World Class" East Coast assets. We expect solid results to be delivered from the exciting opportunities being pursued by our Company. Over the last three years our average share price growth has been 63% per year. From January 1, 2003 to December 31, 2003 the share price grew over 2 fold, an increase of 117%. During 2003 we have been one of the top performers on the AMEX and TSE. The average trading volume for our common shares on the two exchanges was approximately 570,000 shares per day. We are confident that our continued hard work, along with the support of our shareholders will result in the achievement of further superior returns for our shareholders as we remain focused on our objective of growing the Corporation and continuing to add value for our shareholders.