Canadian Superior Reports Strong Q2 Results

Canadian Superior Energy announced strong first 6 months 2004 operating results. The 2nd Quarter of 2004 was highlighted by expansion of the Company's senior management with the hiring of four senior executives from El Paso Canada. During the period in Western Canada, Canadian Superior's focus was centered on continuing with its development drilling program on its Drumheller, Alberta operating area. Offshore Nova Scotia operations have also commenced to survey new proposed locations and move forward with drilling further wells on the Company's "Mariner" offshore project. During the 2nd Quarter Canadian Superior was also successful in expanding its holding in Trinidad and Tobago and over the next 3 years the Company will be drilling 5 exciting wells offshore Trinidad.


Further highlights of the second quarter, included successful expansion of our holdings offshore Trinidad and Tobago by being awarded the right to explore Block 5(c) in the Government of Trinidad and Tobago Ministry of Energy and Energy Industries' 2003/2004 Offshore Competitive Bid Round. This represents a major achievement for our staff and for the Corporation. Early in 2004 we submitted bids for Production Sharing Contracts covering two Blocks located off the east coast of Trinidad. On May 11, 2004, we were pleased to announce that we had been informed by the Trinidad & Tobago Ministry of Energy and Energy Industries that Block 5(c), covering 80,041 gross acres had been awarded to us. Trinidad is one of the most coveted oil and gas basins in the world today and Block 5(c) represents an exciting "World Class" opportunity for Canadian Superior. Block 5(c) has significant natural gas exploration potential offsetting the large Dolphin gas field operated by British Gas. Based on detailed seismic, three large structural gas prospects have been identified on Block 5(c) with multi tcf potential. Block 5(c) is situated in medium water depths, approximately 200 - 400 meters, suitable for semi-submersible rigs capable of reaching targeted drilling depths in approximately 40 days. Based upon our drilling experience Offshore Nova Scotia and elsewhere, Canadian Superior's drilling personnel have considerable expertise in drilling the over-pressured wells expected on Block 5(c). Also, well costs on Block 5(c), estimated at US $12 million for drilling operations, are considerably lower than those experienced drilling offshore Nova Scotia. Canadian Superior competed directly against British Gas for Block 5(c) and we are very fortunate to have been awarded this block by the Trinidad and Tobago Ministry of Energy and Energy Industries.

We have been working diligently with the Ministry of Energy and Energy Industries in the second quarter of 2004, following notification of the award of Block 5(c), to finalize and execute the Production Sharing Contract and move forward with our exploration and development program on the block, and to the credit of all involved this work has been progressing extremely well.

Also during the second quarter of 2004, in Trinidad and Tobago, we continued to lay the groundwork for commencement of the first phase of operations on our "Tradewinds" project, including the planned commencement of seismic operations later this year, to be followed by drilling operations thereafter. Our "Tradewinds" project is a "World Class" oil project and joint venture with the national oil company, the Petroleum Company of Trinidad and Tobago Limited ("Petrotrin"). This joint venture encompasses two near-shore Blocks (55,000 gross acres) off the east coast of Trinidad where we have the potential to establish significant oil reserves in the heart of a known hydrocarbons-bearing structural trend. Given the shallow water nature, less than 30 meters water depth, of the Mayaro/Guayaguayare (M/G) blocks, drilling costs are very affordable and projected at between US $3 million and US $5 million per well. The Blocks are in the Mayaro Bay/Guayaguayare (M/G) area and are on-trend with the recently discovered BHP/Talisman/Total Angostura and British Gas Carapal Ridge fields.

As a result of the Block 5(c) acquisition and our Mayaro/Guayaguayare (M/G) Joint Venture, Canadian Superior plans to drill at least five new exciting wells over the next 3 years in Trinidad and Tobago.


In addition to Trinidad and Tobago, further exciting drilling is planned offshore Nova Scotia on the East Coast of Canada. During the second quarter of 2004, offshore Nova Scotia, we have been actively preparing for further drilling. Two new locations are currently in the process of being surveyed on our "Mariner" Block. Based on front end geological and geophysical analysis completed over the last several weeks, drilling engineering, procurement and permitting activities to progress with additional drilling on our "Mariner" Project is underway. The two new proposed locations can be seen on the map on page 5 of this quarterly report. Wellsite survey work will be conducted at these sites over the next few weeks, and stems from the drilling of our first well completed in late March 2004, when Canadian Superior, along with our joint venture partner El Paso Oil and Gas Canada, Inc., completed the drilling of the first "Mariner Project" exploration well directly offsetting ExxonMobil's Venture natural gas field. The "Mariner" I-85 exploration well was drilled in a challenging surface and sub-surface environment that included harsh weather and high temperature and high pressure conditions utilizing the latest in drilling technology, and reached a total depth of approximately 5,408 meters (17,743 feet) to evaluate the first of three large structures identified with seismic for drilling on the "Mariner Project" licence. The "Mariner" I-85 exploration well encountered gas pay in multiple zones with high bottom hole pressures encountered at anticipated depths. Gas levels measured while drilling supported the presence of gas bearing reservoir sections, subsequently confirmed by a full suite of electronic wireline logs completed and evaluated. Abandonment operations on the exploration well were completed in March 2004. Despite certain uninformed media reports that have not properly reported on this well, as announced in Canadian Superior's press release of March 11, 2004, we remain confident that the results of the "Mariner" I-85 exploration well prove that a substantial gas pool exists between the "Mariner" I-85 exploration well and the Arcadia J-16 well and that we have established the presence of a significant gas reservoir on the "Mariner" block. The factual accuracy of Canadian Superior's March 11, 2004 Press Release has been confirmed publicly on numerous occasions by El Paso.


Canadian Superior has emerged as one of the largest acreage holders Offshore Nova Scotia with interests in six exploration licenses totaling 1,293,946 acres and we are one of the few operators involved in every play type in the basin.

In addition to Canadian Superior's "Mariner" exploration project targeting Cretaceous gas bearing sands located approximately nine kilometers northeast of Sable Island, Offshore Nova Scotia, which encompasses an offshore area of 101,800 acres and directly offsets five significant gas discoveries near Sable Island, including the ExxonMobil Venture natural gas field, we continue to work on our Abenaki Reef "Marquis" project and our "Mayflower" deepwater project. Our "Marquis Project" lands encompass two exploration licenses with approximately 112,000 contiguous acres located in shallow water depths close to the existing Sable Offshore Energy Project producing infrastructure. The "Marquis Project" lands are located approximately 20 kilometers northwest of Sable Island and approximately 25 kilometers northeast of EnCana's Deep Panuke Abenaki reef natural gas discovery. During 2002 the first "Marquis" exploration well, L-35/L-35A, was drilled and confirmed the presence of a porous Abenaki reef reservoir in three separate zones within the Abenaki reef complex. El Paso earned a 50% working interest to the depth drilled in the "Marquis Project" by joining Canadian Superior in the drilling of the "Marquis" L-35/L-35A well. Our primary target in the "Marquis Project" continues to be a large carbonate reef bank reservoir analogous to EnCana's Deep Panuke discovery located 25 kilometers southwest of the "Marquis" well. During 2003, we continued to move forward with El Paso in planning for further drilling on our "Marquis Project". A targeted high-resolution 3-D Seismic Survey on the "Marquis Project" lands, originally scheduled for September of 2003, was postponed due to adverse weather conditions and is expected to proceed in due course. This additional seismic data will provide detailed geophysical data that can now be tied to measured well bore data obtained through the drilling of the "Marquis" L-35/L-35A exploration well. This should allow us to identify optimal future drilling locations on the Abenaki Reef up-dip from our 2002 "Marquis" L-35/L-35A well.

Canadian Superior's "Mayflower" deepwater project exploration license, covering approximately 710,000 acres, was acquired in November 2001 for a Work Expenditure Bid of $41.25 million. This project area is located approximately 460 kilometers (285 miles) east of Boston. Mapping to date indicates the presence of five sizeable deepwater prospects within the "Mayflower" block. These large prospects are structural and are typically formed by mobile salt tectonics. Prospect sizes range from 50 to 200 square kilometers in size and are located in 1,300 to 2,500 meter water depths. These types of prospects have been successfully explored in other basins along the Atlantic margin and contain the potential for large discoveries. Similar deepwater structures offshore West Africa and in the Gulf of Mexico have resulted in several hundred million barrel discoveries. The gas discovery by Marathon and its partners in a turbidite deposit Offshore Nova Scotia has proven the turbidite play concept and establishes that there is hydrocarbon source rock and reservoir in the deepwater plays. We currently plan to proceed with a seismic program over the "Mayflower" block to further define target structures for drilling.

The deepwater plays Offshore Nova Scotia have attracted interest from large international oil and gas companies. Canadian Superior is working to secure joint venture partners for the deepwater "Mayflower" block. A Confidentiality Agreement has been signed by Canadian Superior with a potential partner. The "Mayflower" joint venture partnership will be structured on terms similar to past joint ventures and it is expected to result in the release to us of most of the $10.3 million in secured term deposits currently assigned to the "Mayflower" block.

We also acquired several exciting prospects with the acquisition in November 2003 of our new "Marauder" and "Marconi" exploration lands covering 370,881 additional acres offshore Nova Scotia, acquired for Work Expenditure Bids aggregating to $14.1 million. These exploration licenses were targeted for acquisition based on analysis of recently shot proprietary seismic data and in-house geological evaluations. "Marauder", encompassing 312,037 acres, directly offsets three Significant Discovery Licences (Uniacke, Citnalta and Arcadia). "Marauder" has four seismically defined prospects, two of which lie on trend with and are related to the Uniacke and Citnalta significant discoveries. These provide Canadian Superior with additional attractive prospects in this proven area. "Marconi" (EL 2416), encompassing 58,844 acres, is adjacent to Exploration License 2372 (ExxonMobil, Shell, Imperial Oil), acquired in 1999 for a Work Commitment Bid of just over $55 million. The "Marconi" license has a seismically defined tilted fault / anticlinal prospect similar to other Sable area fields such as Glenelg and Alma. In the second quarter of 2004 Canadian Superior commenced the front end regulatory approval work for the "Marauder" and "Marconi" Prospects. Approval of the Canada-Nova Scotia Benefits Plan related to these two blocks was received in July 2004. Environmental approvals associated with offshore exploration activities (e.g. potential seismic, etc.) for these two blocks will take several months to obtain and we have kicked off this process.


Operations Summary

In addition to our exciting offshore Nova Scotia and Trinidad and Tobago activities during the second quarter of 2004, in Western Canada, development and exploration drilling continued on our Drumheller Alberta core area lands. In addition to the successful first quarter drilling which included one oil well, two gas wells, and one coal bed methane well, five additional wells were drilled during the second quarter. This resulted in two oil wells, one gas well and one coal bed methane. One oil well is producing and the other is being tested. The gas well and the coal bed methane well have been successfully completed and are awaiting tie-in.

Additional highlights included:

  • Oil and Gas Revenues of $18.4 million in the first six months of 2004, up 32% from $13.9 million in the first six months of 2003.

  • Cash Flow from Operations of $9.75 million in the first six months of 2004, up 82% from $5.35 million in the first six months of 2003.

  • Average daily Production of 2,551 boe/d during the first six months of 2004, up 37% from 1,860 boe/d during the first six months of 2003.

  • In Western Canada our 2004 second quarter focus was centered on continuing with a development drilling program on our Drumheller area holdings. Our total acreage holdings in the Drumheller area as at June 30, 2004 was approximately 178,475 gross acres (119,983 net acres). Capital spending has been allocated for twelve additional locations during 2004 at Drumheller. As noted above, a coal bed methane well drilled in the second quarter is awaiting tie-in to further assist in assessing the potential for coal bed methane production on our large Drumheller area landholdings which are located in the heart of Alberta's original coal producing area.

    In addition, in the second quarter of 2004, a successful program of optimizing the Drumheller assets has resulted in two re-completions, three well reactivations, and six oil well pump changes.

    We are focused on enhancing our Drumheller area assets by:

  • Shallow, medium and deep development and exploration drilling

  • Horizontal well drilling programs

  • Recompletions, reactivations and facilities optimization programs

  • Commingling production from multiple potentially productive oil and gas zones between surface and 1,400 meters

  • Examining the potential for a full waterflood program in the Mannville "I" Pool

  • Exploration in untouched deeper drilling horizons

  • Coal bed methane wells are also being planned to assess the potential for coal bed methane production on our large Drumheller area landholdings. Our landholdings are situated in significant thick coal bed accumulations. Our recent assessments have confirmed the potential for commercial methane gas production and led to the formation of joint ventures with Trident Exploration Corp. and with APF Energy. To date, three test wells have been drilled on our Drumheller lands, and as indicated above, one of which was drilled in the second quarter of 2004. As the Drumheller area coal bed potential develops, we are considering aggressive development of our coal bed methane rights. Recent sales prices for Drumheller area lands with coal bed methane potential has exceeded $250,000 per section (approximately $390 per acre). We have approximately 108 net sections (69,120 acres) of Drumheller area lands with potential for coal bed methane production.

    In addition, planning is underway for several high impact wells that will be drilled over the next 12 months in a number of focused explorations areas. In East Ladyfern, we currently hold 24 contiguous sections of land in this area. During the first quarter of 2003, we successfully drilled two Slave Point gas wells jointly with our partner El Paso Canada, who farmed-in and participated to earn 25%. Based on preliminary results, we are confident that our wells may result in the establishment of a new Slave Point natural gas field. To date, during the first quarter of 2004, one well was successfully completed and 62 square kilometers (24 square miles) of 3-D seismic was acquired in the East Ladyfern area. Based on this seismic, multiple new locations have been identified for drilling. Wellsite surveys are expected to be completed during late 2004 and drilling operations are expected to commence after freeze-up this year. A multiple well program with British Gas, the successful acquirer of El Paso Canada, is expected to follow. East Ladyfern pipeline routes have been surveyed and plans have already been submitted to government agencies. Limited winter access area activities were conducted in the East Ladyfern area this past winter due to the sale of our partner's, El Paso Canada, Western Canadian operations. Canadian Superior also holds operated high working interests in a number of other Alberta, British Columbia and Saskatchewan properties that are primarily in winter access areas. These other areas total an aggregate of 102,304 gross acres (83,084 net acres) in Alberta and 15,243 gross acres (11,506 net acres) in British Columbia. The main operated areas in Alberta are Windfall, Boundary Lake and Bison. The Boundary Lake and Bison holdings are not considered to be core holdings and may be sold during 2004. In British Columbia, the main operated areas are Umbach, Altares and Parkland, all of which are considered to be potential high impact areas.


    Our undeveloped land acreage in Western Canada at the end of the second quarter was approximately 177,492 gross acres (151,667 net acres) with an average working interest of 85%. During the balance of 2004, we intend to actively add to our undeveloped land holdings, with a particular focus on the Drumheller area.

    Canadian Superior is one of the largest landholders Offshore Nova Scotia, where Canadian Superior currently holds high working interests (predominantly 100%) in six licenses covering an aggregate of 1,293,946 acres.

    In Trinidad and Tobago, Canadian Superior's "Tradewinds" joint venture lands cover 55,000 gross acres and Block 5(c), awarded in the second quarter 2004, adds an additional 80,041 gross acres. Total acreage is now 135,041 gross acres, resulting in Canadian Superior becoming one of the largest strategic offshore landholders in Trinidad and Tobago.


    Our corporate growth strategy during 2004 and beyond will continue to be focused towards the following six key objectives:

    1. As stated above, we intend to continue forward with further future drilling and development on our "World Class" Offshore Nova Scotia exploration holdings.

  • We intend to proceed with further drilling on our "Mariner Project" lands.

  • We plan to conduct 3-D seismic acquisition on the "Marquis" reef project.

  • In relation to our "Mayflower" extensive deepwater holdings, 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 has been signed with a potential partner.
  • On our recently acquired "Marauder" and "Marconi" lands, 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.

  • 2. 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 the joint venture with the Petroleum Company of Trinidad and Tobago Limited, covering 55,000 gross acres Mayaro Bay/Guayaguayare (M/G) near-shore acreage, and the further "World Class" opportunity related to the second quarter 2004 announcement of our successful acquisition in Trinidad and Tobago of Block 5(c) in the Government of Trinidad and Tobago Ministry of Energy and Energy Industries' 2003/2004 Offshore Competitive Bid Round.

    3. We will continue development of our strategic core production assets in Western Canada focusing on the Drumheller area of Alberta. In addition to conventional drilling and development in this area, attention will also be directed at the tremendous potential for coal bed methane development and horizontal drilling.

    4. Further exploration and development in high impact exploration areas in Western Canada such as in the Altares, Windfall, Umbach and East Ladyfern.

    5. We will continue to work to ensure that balance sheet strength is maintained in order to properly balance high impact project risk.

    6. We are on-watch for opportunities to expand our core corporate interests through strategic acquisitions.

    CORPORATE RESPONSIBILITY AND COMMUNITY INVOLVEMENT Canadian Superior is a strong advocate of direct corporate involvement in communities contributing to, or affected by, its activities. We believe that direct community involvement enhances our ability to properly achieve common goals. Significant efforts are exerted to ensure that we have a responsible and responsive corporate presence. We conduct regular discussions with community representatives and stakeholders and we take care to ensure that planned activities are fully explained. Our attitude of direct involvement with local communities is consistently supported by sponsorship of community programs.

    In Western Canada, Canadian Superior has been a sponsor of urban and rural communities, charitable organizations and sponsorships including cancer research in Alberta, the Calgary Chinook Scout Foundation, the Rockyview General Hospital, STARS and the Alberta Cancer Foundation. The Company is also a major sponsor of the Calgary Stampede and 4H on Parade, the latter being one of the largest rural youth agricultural shows in North America. We intend to actively continue with support for community and charitable programs and initiatives and we encourage our staff and management to do the same.

    In Nova Scotia, Canadian Superior's contributions have included supporting education and training, as well as to oil and gas related research and development activities, for students enrolled in undergraduate education programs in Nova Scotia. We have provided Education, Training, and Research and Development funds to Dalhousie University, St. Francis Xavier University, the University College of Cape Breton and the Nova Scotia Community College.

    Given our recent success in Trinidad and Tobago, we intend to support local communities and programs consistent with achieving our objectives.

    In summary, we intend to continue to actively support programs related to communities and stakeholders that support our corporate objectives and growth strategies.

    OUTLOOK - 2004

    Accordingly, given the above mentioned achievements of the Corporation, the next several months will be very exciting for Canadian Superior and our shareholders. With the continued strong support of our shareholders and the solid growth platforms we have developed that underpin Canadian Superior, we are very confident that 2004 presents us with a very exciting future. We intend to maintain a strong balance sheet while we remain focused on growing our Western Canadian production and developing our "World Class Home Run" opportunities for shareholders.

    We are confident that the stage has been set for our Company to achieve a "Grand Slam Home Run" for shareholders during 2004 and beyond. The awarding of Block 5 (c) in Trinidad and Tobago against British Gas in the second quarter of 2004, combined with the increased depth and breadth of our recently expanded integrated management team, and the exciting drilling and development we have initiated offshore Nova Scotia and in Western Canada has put this in motion and we are confident that our continued hard work, along with your continued support, and the support of our other shareholders will result in continued achievements as we remain focused on our objective of growing the Corporation and continuing to add solid value for our asset base.