Exhibit
1.3




Management's
Discussion and Analysis of Financial Condition and Results of Opera­tions
for the fiscal year ended December 31, 2008




MANAGEMENT'S
DISCUSSION AND ANALYSIS





This
Management's Discussion and Analysis ("MD&A") has been prepared by
management as ofApril 29, 2009 and
reviewed and approved by the Board of Directors of Canadian Superior Energy Inc.
("Canadian Superior" or the "Company").  This MD&A is a review of
the operational results of the Company with disclosure of oil and gas activities
in accordance with Canadian Securities Association National Instrument 51-101
Standards of Disclosure for Oil and Gas Activities ("NI 51-101") and a review of
financial results of the Company based on Canadian Generally Accepted Accounting
Principles ("GAAP").  The reporting currency is the Canadian
dollar.  This MD&A should be read in conjunction with the audited
consolidated financial statements and accompanying notes for the years ended
December 31, 2008 and 2007.





Non-GAAP Measures – This
MD&A contains the term cash flow from operations and operating netback,
which are non-GAAP financial measures that do not have any standardized meaning
prescribed by GAAP and are, therefore, unlikely to be comparable to similar
measures presented by other issuers.  Management believes cash flow
from operations and operating netback are relevant indicators of the Company’s
financial performance, ability to fund future capital expenditures and repay
debt.  Cash flow from operations and operating netback should not be
considered an alternative to or more meaningful than cash flow from operating
activities, as determined in accordance with GAAP, as an indicator of the
Company's performance.  In the Operating netback and cash flow from
operations section of this MD&A, reconciliation has been prepared of cash
flow from operations and operating netback to cash from operating activities,
the most comparable measure calculated in accordance with GAAP.





Boe Presentation – Production
information is commonly reported in units of barrel of oil equivalent
("boe").  For purposes of computing such units, natural gas is
converted to equivalent barrels of oil using a conversion factor of six thousand
cubic feet to one barrel of oil.  This conversion ratio of 6:1 is
based on an energy equivalent wellhead value for the individual
products.  Such disclosure of boes may be misleading, particularly if
used in isolation.  Readers should be aware that historical results
are not necessarily indicative of future performance.





Forward-Looking Statements –
Certain information regarding the Company presented in this document, including
management's assessment of the Company's future plans and operations, may
constitute forward-looking statements under applicable securities law and
necessarily involve risk associated with oil and gas exploration, production,
marketing and transportation such as loss of market, volatility of commodity
prices, currency fluctuations, imprecision of reserve estimates, environmental
risk, competition from other producers and ability to access capital from
internal and external resources, and as a consequence, actual results may differ
materially from those anticipated in the forward-looking
statements.





Statements
contained in this document relate to forward-looking information, including
estimates, projections, interpretations, prognoses and other information that
may relate to current, past or future production, development(s), testing, well
test results, resource potential and/or reserves, project start-ups and future
capital spending.  Forward looking information contained in this
document is as of the date of this document. The Company assumes no obligation
to update and/or revise this forward-looking information “except as required by
law”. Current, past and/or future actual results and/or reported results,
estimates, projections, resource potential and/or reserves, interpretations,
prognoses, and/or estimated results, well results, test results, reserves,
production, resource and/or resource potential, development(s), project
start-ups, and capital spending, plans and/or estimated results could differ
materially due to changes in project schedules, operating performance, demand
for oil and gas, commercial negotiations or other technical and economic factors
or revisions.  This document may contain the reference to the terms
discovery, reserves and/or resources or resource potential discovered and/or
undiscovered which are those quantities estimated to be contained in
accumulations.  There is no certainty that any portion of these
accumulations or estimated accumulations in this document may not change
materially; and that, if discovered, in any discovery, the accumulations or
estimated accumulations may not be economically viable or technically feasible
to produce.





Statements
contained in this document relating to estimates, results, events and
expectations are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended and Section 21E of the Securities
Exchange Act of 1934, as amended.  These forward-looking statements
involve known and unknown risks, uncertainties, scheduling, re-scheduling and
other factors which may cause the actual results, performance, estimates,
projections, resource potential and/or reserves, interpretations, prognoses,
schedules or achievements of the Company, or industry results, to be materially
different from any future results, performance or achievements expressed or
implied by such statements.  Such factors include, among others, those
described in the Company’s’ annual reports on Form 40-F or Form 20-F on file
with the U.S. Securities and Exchange Commission.





Business
of Canadian Superior





Canadian
Superior Energy Inc. is engaged in the exploration for, and acquisition,
development and production of petroleum and natural gas, and LNG projects, with
operations in Western Canada, offshore Nova Scotia, Canada, offshore Trinidad
and Tobago, the United States and North Africa.





Canadian
      Superior Energy Inc.
              2008
      MD&A
              Page
      1











Operating
netback and cash flow from operations





($
      thousands)
                                    
                                    
                                    ($
      per boe)Three
      months ended December 31,
                                    
                                    2008
                                    
                                    
                                    2007
                                    
                                    
                                    %
      change
                                    
                                    
                                    2008
                                    
                                    
                                    2007
                                    
                                    
                                    %
      changeRevenuePetroleum and natural gas
      sales
                                    
                                    
                                    13,331
                                    
                                    
                                    
                                    13,215
                                    
                                    
                                    
                                    1
                                    
                                    
                                    
                                    45.01
                                    
                                    
                                    
                                    44.93
                                    
                                    
                                    
                                    0Realized gain on financial
      instruments
                                    
                                    
                                    40
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    n/a
                                    
                                    
                                    
                                    0.14
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    n/aTransportation
                                    
                                    
                                    (158
                                    )
                                    
                                    
                                    (176
                                    )
                                    
                                    
                                    (10)
                                    
                                    
                                    
                                    (0.53
                                    )
                                    
                                    
                                    (0.60
                                    )
                                    
                                    
                                    (12
                                    )Royalties
                                    
                                    
                                    (3,271
                                    )
                                    
                                    
                                    (1,851
                                    )
                                    
                                    
                                    77
                                    
                                    
                                    
                                    (11.04
                                    )
                                    
                                    
                                    (6.29
                                    )
                                    
                                    
                                    769,942
                                    
                                    
                                    
                                    11,188
                                    
                                    
                                    
                                    (11
                                    )
                                    
                                    
                                    33.58
                                    
                                    
                                    
                                    38.04
                                    
                                    
                                    
                                    (12
                                    )Operating
    expenses
                                    
                                    
                                    2,983
                                    
                                    
                                    
                                    3,392
                                    
                                    
                                    
                                    (12
                                    )
                                    
                                    
                                    10.07
                                    
                                    
                                    
                                    11.53
                                    
                                    
                                    
                                    (13
                                    )Operating
      netback(1)
                                    
                                    
                                    6,959
                                    
                                    
                                    
                                    7,796
                                    
                                    
                                    
                                    (11
                                    )
                                    
                                    
                                    23.51
                                    
                                    
                                    
                                    26.51
                                    
                                    
                                    
                                    (11
                                    )General and
      administrative
                                    
                                    
                                    3,943
                                    
                                    
                                    
                                    4,346
                                    
                                    
                                    
                                    (9
                                    )
                                    
                                    
                                    13.31
                                    
                                    
                                    
                                    14.78
                                    
                                    
                                    
                                    (10
                                    )Asset retirement
      expenditures
                                    
                                    
                                    169
                                    
                                    
                                    
                                    361
                                    
                                    
                                    
                                    (53
                                    )
                                    
                                    
                                    0.57
                                    
                                    
                                    
                                    1.23
                                    
                                    
                                    
                                    (54
                                    )Forfeiture of Nova Scotia Term
      Deposits
                                    
                                    
                                    (416
                                    )
                                    
                                    
                                    (500
                                    )
                                    
                                    
                                    (17
                                    )
                                    
                                    
                                    (1.40
                                    )
                                    
                                    
                                    (1.70
                                    )
                                    
                                    
                                    (18
                                    )Interest and other
      income
                                    
                                    
                                    (248
                                    )
                                    
                                    
                                    (230
                                    )
                                    
                                    
                                    8
                                    
                                    
                                    
                                    (0.84
                                    )
                                    
                                    
                                    (0.78
                                    )
                                    
                                    
                                    8Foreign exchange
      gain
                                    
                                    
                                    (1,892
                                    )
                                    
                                    
                                    (234
                                    )
                                    
                                    
                                    709
                                    
                                    
                                    
                                    (6.39
                                    )
                                    
                                    
                                    (0.80
                                    )
                                    
                                    
                                    699Interest
                                    
                                    
                                    515
                                    
                                    
                                    
                                    965
                                    
                                    
                                    
                                    (47
                                    )
                                    
                                    
                                    1.74
                                    
                                    
                                    
                                    3.28
                                    
                                    
                                    
                                    (47
                                    )Bad debt
expense
                                    
                                    
                                    218
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    n/a
                                    
                                    
                                    
                                    0.74
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    n/aCapital taxes
                                    
                                    
                                    16
                                    
                                    
                                    
                                    55
                                    
                                    
                                    
                                    (71
                                    )
                                    
                                    
                                    0.05
                                    
                                    
                                    
                                    0.19
                                    
                                    
                                    
                                    (74
                                    )Cash
      flow from operations(1)
                                    
                                    
                                    4,654
                                    
                                    
                                    
                                    3,033
                                    
                                    
                                    
                                    53
                                    
                                    
                                    
                                    15.73
                                    
                                    
                                    
                                    10.31
                                    
                                    
                                    
                                    53Changes in non-cash working
      capital
                                    
                                    
                                    (1,969
                                    )
                                    
                                    
                                    9,040
                                    
                                    
                                    
                                    (122
                                    )
                                    
                                    
                                    (6.65
                                    )
                                    
                                    
                                    30.74
                                    
                                    
                                    
                                    (122
                                    )Cash
      used by operating activities
                                    
                                    
                                    2,685
                                    
                                    
                                    
                                    12,073
                                    
                                    
                                    
                                    (78
                                    )
                                    
                                    
                                    9.07
                                    
                                    
                                    
                                    41.05
                                    
                                    
                                    
                                    (78
                                    )


(1)
Non-GAAP measure





($
      thousands)
                            
                            
                            ($
      per boe)Twelve
      months ended December 31,
                            
                            2008
                            
                            
                            2007
                            
                            
                            %
      change
                            
                            
                            2008
                            
                            
                            2007
                            
                            
                            %
      changeRevenuePetroleum and natural gas
      sales
                            
                            
                            75,730
                            
                            
                            
                            48,492
                            
                            
                            
                            56
                            
                            
                            
                            60.12
                            
                            
                            
                            46.72
                            
                            
                            
                            29Realized losses on financial
      instruments
                            
                            
                            (496
                            )
                            
                            
                            --
                            
                            
                            
                            n/a
                            
                            
                            
                            (0.39
                            )
                            
                            
                            --
                            
                            
                            
                            n/aTransportation
                            
                            
                            (771
                            )
                            
                            
                            (645
                            )
                            
                            
                            20
                            
                            
                            
                            (0.61
                            )
                            
                            
                            (0.62
                            )
                            
                            
                            (2
                            )Royalties
                            
                            
                            (14,404
                            )
                            
                            
                            (7,914
                            )
                            
                            
                            82
                            
                            
                            
                            (11.43
                            )
                            
                            
                            (7.63
                            )
                            
                            
                            5060,059
                            
                            
                            
                            39,933
                            
                            
                            
                            50
                            
                            
                            
                            47.69
                            
                            
                            
                            38.47
                            
                            
                            
                            24Operating
    expenses
                            
                            
                            14,197
                            
                            
                            
                            9,883
                            
                            
                            
                            44
                            
                            
                            
                            11.27
                            
                            
                            
                            9.52
                            
                            
                            
                            18Operating
      netback(1)
                            
                            
                            45,862
                            
                            
                            
                            30,050
                            
                            
                            
                            53
                            
                            
                            
                            36.41
                            
                            
                            
                            28.95
                            
                            
                            
                            26General and
      administrative
                            
                            
                            14,074
                            
                            
                            
                            13,315
                            
                            
                            
                            6
                            
                            
                            
                            11.17
                            
                            
                            
                            12.83
                            
                            
                            
                            (13
                            )Asset retirement
      expenditures
                            
                            
                            398
                            
                            
                            
                            361
                            
                            
                            
                            10
                            
                            
                            
                            0.32
                            
                            
                            
                            0.35
                            
                            
                            
                            (9
                            )Forfeiture of Nova Scotia Term
      Deposits
                            
                            
                            (416
                            )
                            
                            
                            (500
                            )
                            
                            
                            (17
                            )
                            
                            
                            (0.33
                            )
                            
                            
                            (0.48
                            )
                            
                            
                            (31
                            )Interest and other
      income
                            
                            
                            (700
                            )
                            
                            
                            (925
                            )
                            
                            
                            (24
                            )
                            
                            
                            (0.56
                            )
                            
                            
                            (0.89
                            )
                            
                            
                            (37
                            )Foreign exchange (gain)
      loss
                            
                            
                            (3,877
                            )
                            
                            
                            1,690
                            
                            
                            
                            (329
                            )
                            
                            
                            (3.08
                            )
                            
                            
                            1.63
                            
                            
                            
                            (289
                            )Interest
                            
                            
                            2,248
                            
                            
                            
                            2,199
                            
                            
                            
                            2
                            
                            
                            
                            1.78
                            
                            
                            
                            2.12
                            
                            
                            
                            (16
                            )Bad debt
expense
                            
                            
                            218
                            
                            
                            
                            --
                            
                            
                            
                            n/a
                            
                            
                            
                            0.17
                            
                            
                            
                            --
                            
                            
                            
                            n/aCapital taxes
                            
                            
                            16
                            
                            
                            
                            55
                            
                            
                            
                            (71
                            )
                            
                            
                            0.01
                            
                            
                            
                            0.05
                            
                            
                            
                            (80
                            )Cash
      flow from operations(1)
                            
                            
                            33,901
                            
                            
                            
                            13,855
                            
                            
                            
                            145
                            
                            
                            
                            26.94
                            
                            
                            
                            13.34
                            
                            
                            
                            102Changes in non-cash working
      capital
                            
                            
                            (1,240
                            )
                            
                            
                            (4,993
                            )
                            
                            
                            75
                            
                            
                            
                            (0.98
                            )
                            
                            
                            (4.81
                            )
                            
                            
                            80Cash
      used by operating activities
                            
                            
                            32,661
                            
                            
                            
                            8,862
                            
                            
                            
                            269
                            
                            
                            
                            25.96
                            
                            
                            
                            8.53
                            
                            
                            
                            204


(1)
Non-GAAP measure





For the
three months ended December 31, 2008, cash flow from operations was $4.7 million
compared to $3.0 million in 2007. For the twelve months ended December 31, 2008,
cash flow from operations was $33.9 million compared to $13.9 million in 2007.
The increase in 2008 is mainly due to higher operating netbacks as a result of
the acquisition of Seeker Petroleum Ltd. (“Seeker”). In addition, the Company
realized higher foreign exchange gains related to the Company’s Trinidad and
Tobago “Intrepid” Block 5(c) project.





Canadian
      Superior Energy Inc.
              2008
      MD&A
              Page
      2











Production


Three
      months ended
                December
      31
              
              
              Twelve
      months ended
                December
      312008
              
              
              2007
              
              
              2008
              
              
              2007Natural gas (mcf/d)
              
              
              15,726
              
              
              
              15,366
              
              
              
              16,685
              
              
              
              13,496Crude oil and natural gas
      liquids(bbls/d)
              
              
              599
              
              
              
              636
              
              
              
              661
              
              
              
              594Total Production (boe/d)
      (6:1)
              
              
              3,220
              
              
              
              3,197
              
              
              
              3,442
              
              
              
              2,843





Fourth
quarter production averaged 3,220 boe per day and for the twelve months ended
December 31, 2008 averaged 3,442 boe per day. The increase in production is due
primarily to additional production volumes from the acquisition of Seeker and
favourable drilling results which more than offset natural declines in existing
production.





Petroleum
and natural gas sales, net of transportation





Three
      months ended
                  December
      31
                
                
                Twelve
      months ended
                  December
      31($
      thousands, except where otherwise noted)
                
                2008
                
                
                2007
                
                
                2008
                
                
                2007Petroleum
      and natural gas sales, net of transportationNatural gas
                
                
                10,405
                
                
                
                8,309
                
                
                
                52,870
                
                
                
                33,111Realized gain (losses) on
      financial instruments
                
                
                40
                
                
                
                --
                
                
                
                (496
                )
                
                
                --10,445
                
                
                
                8,309
                
                
                
                52,374
                
                
                
                33,111Crude oil and natural gas
      liquids
                
                
                2,768
                
                
                
                4,730
                
                
                
                22,089
                
                
                
                14,736Total
                
                
                13,213
                
                
                
                13,039
                
                
                
                74,463
                
                
                
                47,847Average
      sales priceNatural gas ($/mcf)
                
                
                7.22
                
                
                
                5.88
                
                
                
                8.58
                
                
                
                6.72Crude oil and natural gas
      liquids($/bbl)
                
                
                50.25
                
                
                
                80.82
                
                
                
                91.32
                
                
                
                67.95Total($/boe)
                
                
                44.48
                
                
                
                44.33
                
                
                
                59.51
                
                
                
                46.10





For the
three months ended December 31, 2008, petroleum and natural gas sales, net of
transportation and realized losses on financial instruments (“petroleum and
natural gas sales”) were $13.2 million, consisting of $10.4 million in natural
gas and $2.8 million of crude oil and natural gas liquids sales. For the twelve
months ended December 31, 2008, petroleum and natural gas sales were $74.5
million, consisting of $52.4 million in natural gas and $22.1 million of crude
oil and natural gas liquids sales.





During
the fourth quarter, Canadian Superior realized an average sales price of $44.48
per boe compared to $44.33 per boe in 2007. For the twelve months ended December
31, 2008, the company realized an average sales price of $59.51 per boe compared
to $46.10 per boe in 2007.  The increase in petroleum and natural gas
sales is due to increased production and higher commodity prices in 2008
compared to the same period in 2007.





During
2008, the Company realized losses of $0.5 million on a natural gas hedge of
2,000 GJs per day at $7.05 per GJ for the period February 1, 2008 to October 31,
2008. The remainder of the Company’s production is sold on the spot
market.





Canadian
      Superior Energy Inc.
              2008
      MD&A
              Page
      3








Royalties





Three
      months ended
                        December
      31
                      
                      
                      Twelve
      months ended
                        December
      31($
      thousands, except where otherwise noted)
                      
                      2008
                      
                      
                      2007
                      
                      
                      2008
                      
                      
                      2007RoyaltiesCrown
                      
                      
                      2,760
                      
                      
                      
                      1,160
                      
                      
                      
                      11,529
                      
                      
                      
                      5,901Freehold and
      overriding
                      
                      
                      511
                      
                      
                      
                      691
                      
                      
                      
                      2,875
                      
                      
                      
                      2,013Total
                      
                      
                      3,271
                      
                      
                      
                      1,851
                      
                      
                      
                      14,404
                      
                      
                      
                      7,914Royalties
      per boe ($)
                      
                      
                      11.04
                      
                      
                      
                      6.29
                      
                      
                      
                      11.43
                      
                      
                      
                      7.63Average
      royalty rate (%)
                      
                      
                      24.8
                      
                      
                      
                      14.2
                      
                      
                      
                      19.3
                      
                      
                      
                      16.5





Canadian
Superior pays royalties to provincial governments, freehold landowners and
overriding royalty owners.  Royalties are calculated and paid based on
petroleum and natural gas sales net of transportation.  Natural gas
and liquids royalties for the twelve months ended December 31, 2008 were $14.4
million or 19.3% of total petroleum and natural gas sales compared to $7.9
million or 16.5% in 2007. The increase in royalty rates was due to reassessments
on Alberta royalty tax credits for 2004 to 2006 related to Seeker
properties.





Operating
expenses





Operating
expenses were $3.0 million or $10.07 per boe for the fourth quarter of 2008
compared to $3.4 million or $11.53 per boe in 2007.  For the twelve
months ended December 31, 2008, operating expenses were $14.2 million or $11.27
per boe compared to $9.9 million or $9.52 per boe. The increase compared to
prior year is mainly due to the higher cost structure of the producing
properties acquired in the Seeker acquisition and the completion of scheduled
plant turnarounds in 2008.





General
and administrative expenses





Three
      months ended
                December
      31
              
              
              Twelve
      months ended
                December
      31($
      thousands, except where otherwise noted)
              
              2008
              
              
              2007
              
              
              2008
              
              
              2007Gross
      general and administrative expense
              
              
              9,751
              
              
              
              4,467
              
              
              
              31,019
              
              
              
              16,122Capitalized
      general and administrative expense
              
              
              (5,808
              )
              
              
              (121
              )
              
              
              (16,945
              )
              
              
              (2,807
              )Net
      general and administrative expense
              
              
              3,943
              
              
              
              4,346
              
              
              
              14,074
              
              
              
              13,315General
      and administrative expense ($/boe)
              
              
              13.31
              
              
              
              14.78
              
              
              
              11.17
              
              
              
              12.83





Fourth
quarter general and administrative expense (“G&A”) was $3.9 million or
$13.31 per boe compared to $4.3 million or $14.78 per boe in 2007. For the
twelve months ended December 31, 2008, G&A was $14.1 million or $11.17 per
boe compared to $13.3 million or $12.83 per boe in 2007.  The increase
in gross G&A from 2007 is mainly due to increased expenses related to the
Company’s Liberty LNG project and “Intrepid” Block 5(c) project in Trinidad and
Tobago.





Stock
based compensation





During
the twelve months ended December 31, 2008, Canadian Superior incurred stock
based compensation expenses of $6.4 million compared to $4.2 million in 2007.
The increase from 2007 is due to additional options issued during the
year.





Depletion,
depreciation and accretion





Depletion,
depreciation and accretion ("DD&A") was $39.8 million or $31.56 per boe for
the twelve months ended December 31, 2008. The calculation of depletion and
depreciation included an estimated $12.5 million (December 31, 2007 - $8.7
million) for future development capital associated with proven undeveloped
reserves and excluded $123.6 million (December 31, 2007 - $54.4 million) related
to unproved properties and projects under construction or
development.  Of the costs excluded $22.7 million (December 31, 2007 -
$20.8 million) relates to Western Canada, $5.5 million (December 31, 2007 - $8.8
million) to East Coast Canada, $80.6 million (December 31, 2007




Canadian
      Superior Energy Inc.
              2008
      MD&A
              Page
      4











Depletion,
depreciation and accretion (continued)





- $24.8
million) to Trinidad and Tobago, $12.3 million (December 31, 2007 – nil) to a
liquefied natural gas regasification (“LNG”) project in the United States and
$2.5 million (December 31, 2007 – nil) for offshore Libya/Tunisia. Canadian
Superior’s DD&A per boe is high compared to other exploration and production
companies its size, due to significant expenditures incurred to drill and
evaluate the Company’s offshore wells in the East Coast of Canada being included
in the depletable base with no associated proven reserves
reflected.





Income
taxes





Canadian
Superior’s current and future income taxes are dependent on factors such as
production, commodity prices and tax classification of drilled exploration and
development wells.  The Company had a future income tax recovery for
the twelve months ended December 31, 2008 of $3.0 million (December 31, 2007 -
$6.0 million)





For the
twelve months ended December 31, 2008, the Company had $256.4 million in tax
pools and $10.6 million in non-capital losses that are available for future
deduction against taxable income.





December
      31($
      thousands)
              
              2008Canadian
      exploration expense
              
              
              48,300Canadian
      oil and gas property expense
              
              
              48,551Canadian
      development expense
              
              
              53,284Undepreciated
      capital costs
              
              
              33,475Share
      issue costs
              
              
              5,971Foreign
      exploration expense
              
              
              66,014Other
              
              
              782Total
              
              
              256,377





Non-capital
losses expire as follows:





($
      thousands)2010
              2202011
      - 2025
              --2026
              2,9702027
              7,38710,577





Capital
expenditures





Three
      months ended
                December
      31
              
              
              Twelve
      months ended
                December
      31($
      thousands)
              
              2008
              
              
              2007
              
              
              2008
              
              
              2007Acquisitions
              
              
              --
              
              
              
              120
              
              
              
              7,050
              
              
              
              197Exploration
      and development
              
              
              34,248
              
              
              
              20,148
              
              
              
              88,336
              
              
              
              47,332Plants,
      facilities and pipelines
              
              
              3,276
              
              
              
              2,753
              
              
              
              5,028
              
              
              
              7,246Land
      and lease
              
              
              876
              
              
              
              1,608
              
              
              
              3,775
              
              
              
              6,070Capitalized
      general and administrative expenses
              
              
              5,808
              
              
              
              121
              
              
              
              16,945
              
              
              
              5,437Exploration
      and development expenditures
              
              
              44,208
              
              
              
              24,750
              
              
              
              121,134
              
              
              
              66,282Exploration
      and development divestitures
              
              
              (1,315
              )
              
              
              --
              
              
              
              (1,315
              )
              
              
              (41,310
              )Net
      capital expenditures
              
              
              42,893
              
              
              
              24,750
              
              
              
              119,819
              
              
              
              24,972







Canadian
      Superior Energy Inc.
            2008
      MD&A
            Page
      5











Capital
expenditures (continued)





The
Company invested $119.8 million for capital expenditures during the twelve
months ended December 31, 2008, of which the majority was spent to drill, test
and evaluate the “Victory” and “Bounty” wells and to drill the “Endeavour” well
offshore Trinidad.  In addition, the Company drilled 33 gross wells
(28.1 net) in Western Canada.





Acquisition





On March
26, 2008, Canadian Superior completed the acquisition of Seeker for
consideration of approximately $51.6 million.  The purchase was funded
through the issuance of common shares of the Company and advances from the
credit facility.





The
acquisition was accounted for under the purchase method as follows:





ConsiderationCash
              
              
              22,211Common
      shares (7,651,866)
              
              
              28,465Transaction
      costs
              
              
              88751,563





Net
      assets received at fair valueCash
              
              
              1,716Working
      Capital
              
              
              (387
              )Fair
      value of financial instruments
              
              
              (796
              )Property,
      plant and equipment
              
              
              40,953Goodwill
              
              
              10,365Asset
      retirement obligation
              
              
              (1,243
              )Future
      income taxes
              
              
              95551,563





The
Company reviewed the valuation of goodwill at December 31, 2008 and determined
that the fair value of the reporting entity had declined. Based on this review,
an impairment of goodwill of $10.4 million (December 31, 2007 – nil) has been
recorded as a non-cash charge to the statement of operations at December 31,
2008.  There has been no impairment to the carrying amount of the
Company’s petroleum and natural gas assets at December 31, 2008.





Liquidity
and capital resources





December
      31
              
              
              December
      31($
      thousands)
              
              2008
              
              
              2007Working
      capital surplus excluding revolving credit facility
              
              
              2,034
              
              
              
              30,447Revolving
      credit facility
              
              
              (43,263
              )
              
              
              (17,784
              )Working
      capital surplus (deficit)
              
              
              (41,229
              )
              
              
              12,663





As at
December 31, 2008, Canadian Superior had a working capital deficit of $41.2
million (December 31, 2007 - $12.7 million), the Company had drawn $43.3 million
(December 31, 2007 - $17.8 million) against the $45.0 million revolving credit
facility (“credit facility”) at a variable interest rate of prime + 1% (December
31, 2007 – prime + 1%).  The credit facility is secured by a $100
million first floating charge demand debenture on the assets of the Company and
a general security agreement covering all of the assets of the
Company.  The credit facility has covenants that require the Company
to maintain its working capital ratio at 1:1 or greater, tangible net worth to
total liabilities at 1.5:1.0 or greater and tangible net worth at greater than
$100 million while the credit facility is outstanding.  The borrowing
base of the credit facility is subject to an annual review by the
lender.  The Company had $6.0 million in cash and short-term deposits
(December 31, 2007 - $13.7 million) and $15.2 million of term deposits (December
31, 2007 - $14.6 million) posted as security against the remaining Offshore Nova
Scotia work expenditure bids.







Canadian
      Superior Energy Inc.
            2008
      MD&A
            Page
      6










Liquidity
and capital resources (continued)





Subsequent
to year end, on February 12, 2009, the bank demanded for payment in full the
amounts outstanding together with any accrued interest and other legal fees and
charges by February 23, 2009 or they would take such steps as they considered
necessary to protect its position. At February 12, 2009, the amounts outstanding
and owing to the bank were $44.2 million.





In
addition, on February 18, 2009 the bank applied the proceeds from an asset sale
by the Company as a permanent reduction to the operating facility to a maximum
availability of $37.5 million.





On
February 23, 2009, the bank did not take steps to protect its position. Instead,
with the filing of the Initial Order for CCAA on March 5, 2009, the bank was
under no obligation to advance or re-advance any monies or otherwise extend any
credit to the Company. During the first stay period to March 25, 2008 the bank
did allow the Company to use the available line of credit and again during the
second stay period to May 4, 2009.





On
September 3, 2008, the Company completed a non-brokered private placement of
8,750,000 common shares at USD $4.00 per share for gross proceeds of USD $35.0
million.





On
December 5 2008, the Company completed a private placement of 10,322,581 flow
through common shares at $ 1.55 per share for gross proceeds of $16.0
million.





Contingencies
and commitments





Nova
Scotia





Since
2000, the Company has acquired several exploration licenses from the
CNSOPB.  Each of these licenses is for a specific period of nine
years, subject to certain requirements being met during the first five years or
six years.  As a condition of the licenses, the Company is required to
post security in the amount of 25% of its work expenditure bids. The deposit is
refundable only to the extent of approved allowable expenditures.  The
duration of the initial five year term, for a given license, can be extended one
additional year to six years by posting an additional security drilling deposit
in an amount of $250,000. The CNSOPB has an additional extension program that
allows the six year period to be further extended up to nine years by payment of
annual extension fees.  As of December 31, 2008, as a result of the
Company incurring certain expenditures and drilling two exploration wells, the
Company had fully fulfilled its work expenditures on two of the exploration
licenses, allowed three licenses to return to the Crown, extended one license
and held the remaining two under the regular licensing process.  At
December 31, 2008, the Company’ owned 100% of two exploration licenses which
were forfeited subsequent to year end, the remaining three exploration licenses
have aggregate work expenditure outstanding of $55.1 million and $15.2 million
in term deposits assigned to the Canadian Receiver General through the
CNSOPB.





Block
5(c) Trinidad and Tobago





The
Company is committed to drill three exploration wells on its “Intrepid” Block
5(c) under its Block 5(c) PSC with the Government of Trinidad and Tobago funded
in part by a related party participating on a promoted basis, paying 1/3 of
Canadian Superior’s Block 5(c) exploration program, plus other considerations,
to obtain 25% of Canadian Superior’s net revenue share from this block; and,
also by a non-related party paying approximately 40% of the exploration cost,
plus other considerations, for a 30% interest in the Block 5(c)
PSC.  The Company completed the drilling of the final well of the
three well program in March 2009.





On
February 10, 2009 the Company announced that it proposed to monetize a 25% or
larger interest in its "Intrepid" Block 5(c) offshore Trinidad and Tobago and
its related discoveries, subject to acceptable terms and conditions, and subject
to all required approvals. Canadian Superior has retained a financial advisor,
Scotia Waterous (USA) Inc, to assist in the sale of the asset.







Canadian
      Superior Energy Inc.
            2008
      MD&A
            Page
      7











Contingencies
and commitments (continued)





On
February 12, 2009 the Company announced the appointment, upon the application of
BG International Limited (“BG”), a wholly owned subsidiary of the BG Group plc,
of Deloitte & Touche Inc. as Interim Receiver (the “Receiver”)of its
participating interest in "Intrepid" Block 5(c). Pursuant to the Court Order,
the Receiver, in conjunction with BG, will operate the property and conduct the
flow testing of the "Endeavour" well which Canadian Superior believes will
validate its operations to date. The Court Order allows the Receiver to charge
Canadian Superior interest in Block 5(c) with an amount up to US$47.0 million to
pay for its share of the costs under the joint operating agreement with BG.
Canadian Superior will continue with the monetization of its interest in Block
5(c) as previously announced and the proceeds from any sale will be applied to
its share of the costs charged against Block 5(c) and to discharge the
Receiver.





MG Block
Trinidad and Tobago





In 2007,
the Company received an exploration and development license from the Government
of Trinidad and Tobago on the Mayaro-Guayaguayare block (“MG Block”) and as a
result is committed to conducting 3D seismic by the end of 2009 and to drill two
exploration wells on the MG block in a joint venture with the Petroleum Company
of Trinidad and Tobago Limited (“Petrotrin”).  The first well has to
be drilled to a depth of 3,000 meters by January 2010 and the second to a depth
of 1,800 meters by July 2010. The Company estimates that its share of the cost
of these wells to be approximately US$15.0 million per well.  The
estimated cost of the 3D seismic program is approximately US$30.0
million.  The Company has provided a performance guarantee of US$12.0
million to meet the minimum work program.





Libya/Tunisia





On
September 3, 2008, Canadian Superior entered into an exploration production
sharing agreement ("EPSA") with a Tunisian/Libyan company, Joint Exploration,
Production, and Petroleum Services Company ("Joint Oil") and also signed a "Swap
Agreement" awarding an overriding royalty interest and optional participating
interest to Joint Oil, in Canadian Superior's "Mariner" Block, offshore, Nova
Scotia, Canada.  If at the end of August 2011, no royalty well has
been spud, Joint Oil has the right to put back and sell the overriding royalty
to the Company for US$12.5 million. Under terms of the EPSA, Canadian Superior
has been named Operator for the "7th of November Block".





The
exploration work commitment for the first phase (four years) of the seven year
exploration period will include three exploration wells, 300 square miles of 3D
seismic, and one appraisal well.  As requirement of the EPSA, Canadian
Superior has provided a bank guarantee for US$15.0 million to Joint Oil,
portions of this guarantee will be reduced by Joint Oil upon Canadian Superior
completing specified requirements under the EPSA.  Under the terms of
the EPSA, the Company has provided a corporate guarantee and is committed to
expend US$49.0 million over the seven year exploration period.





Flow-through
shares





At
December 31, 2008, the Company had yet to incur approximately $16.0 million of
Canadian exploration expenses which were renounced for tax
purposes.  These expenses must be incurred by December 31,
2009.




Litigation
and claims





The
Company is involved in various claims and litigation arising in the ordinary
course of business.  In the opinion of Canadian Superior the various
claims and litigations arising there from are not expected to have a material
adverse effect on the Company’s financial position.  The Company
maintains insurance, which in the opinion of the Company, is in place to address
any unforeseen claims.




Lease
obligations




At
December 31, 2008, the Company is committed to future payments for office leases
and equipment.  Payments required under these commitments for each of
the next five years are as follows:




2009
                  
                  
                  2010
                  
                  
                  2011
                  
                  
                  2012
                  
                  
                  Thereafter
                  
                  
                  TotalOffice
      rent
                  
                  
                  2,576
                  
                  
                  
                  3,631
                  
                  
                  
                  4,208
                  
                  
                  
                  3,749
                  
                  
                  
                  17,881
                  
                  
                  
                  32,045Equipment
                  
                  
                  49
                  
                  
                  
                  19
                  
                  
                  
                  11
                  
                  
                  
                  8
                  
                  
                  
                  --
                  
                  
                  
                  872,625
                  
                  
                  
                  3,650
                  
                  
                  
                  4,219
                  
                  
                  
                  3,757
                  
                  
                  
                  17,881
                  
                  
                  
                  32,132







Canadian
      Superior Energy Inc.
            2008
      MD&A
            Page
      8











Subsequent
event





On April
27, 2009, the Board of Directors of Canadian Superior announced the departure of
the Executive Chairman of the Company and of Directors and the President
and Chief Executive Officer of the Company.  On April 29, 2009, the Board
announced the appointment of Leif Snethun as Chief Operating
Officer.





Related
parties transactions





During
the twelve months ended December 31 2008, the Company paid $2.3 million (2007 -
$1.9 million), on industry terms, for equipment rentals to a company controlled
by an officer and director of Canadian Superior.  Also during 2008,
the Company invoiced $1.1 million (2007 - $0.7 million), to this related party
company for payroll services.





On May
20, 2008, Canadian Superior announced its participation in the proposed
development of a liquefied natural gas regasification project in US federal
waters offshore New Jersey.  The project will be conducted by
Excalibur Energy (USA) Inc., which is a 50/50 joint venture between Canadian
Superior and a company controlled and owned by certain officers and directors of
Canadian Superior and third parties.  Under the terms of the joint
venture agreement Canadian Superior will advance the first US$10.0 million of
the pre-construction costs for the project.  Joint venture partners
may discontinue their participation in the project at any time by assigning its
respective interest to the remaining partners without any additional cost or
further action required.  In 2008, Canadian Superior has incurred
under normal industry terms and conditions $12.3 million of costs related to
this project.





As at
December 31, 2008, Canadian Superior carried a receivable in the amount of
US$29.1 million (December 31, 2007 – US$19.7 million) from a company which one
of Canadian Superior’s officers and directors is a shareholder and was a
director until October 23, 2008.  The receivable at December 31, 2008
was composed of amounts owed to December 31, 2008 of approximately US$21.1
million, amounts totaling US$3.9 million representing amounts owing after
settlement of dispute with the drilling contractor and approximately US$4.1
million of drilling costs incurred in December 2008 not billed until January
2009. These receivables pertain to costs incurred on Canadian Superior’s
“Intrepid” Block 5 (c) project at Trinidad under normal industry terms and
conditions.





On
September 23, 2008, Canadian Superior entered into a short-term $14.0 million
bridge facility with this company to enable them to close on a $30 million
equity financing.   At December 31, 2008, $14.0 million had been
drawn and was used to satisfy this company’s share of direct and indirect costs
in connection with the exploration program on the “Intrepid” Block 5 (c) project
in Trinidad.  The interest payable to Canadian Superior at December
31, 2008 was $0.1 million based on an interest rate of 10% per annum on any
outstanding balance. The company may pay interest incurred in common shares.
Subsequent to year end this company issued 188,216 common shares for interest
payable up to and including January 31, 2009 based on a predetermined
calculation. The bridge security is secured by a debenture creating a first
priority security interest over all present and after-acquired personal property
and a first floating charge over all present and after-acquired real and
personal property of this company.  Upon any drawdown of any amounts
of the bridge facility this company will issue a predetermined amount of
non-transferable warrants to Canadian Superior.   At December 31,
2008, this company issued 500,000 non-transferable share purchase
warrants.  Each warrant entitles the holder to purchase a common share
until October, 2010 at a price of $3.50 per common share.  In
addition, this company paid a standby fee of $0.1 million to Canadian Superior
in 2008.





At
December 31, 2008, this company was in default on repayment of the bridge
facility.





On
February 27, 2009, this company obtained an order from the Court of Queen's
Bench of Alberta granting creditor protection under CCAA. The Initial Order was
for a period ending March 23, 2009. The Initial Order was obtained after the
Board of Directors determined this company was unable to continue to make
required payments under a participation agreement with Canadian Superior and BG
with respect to exploration Block 5(c) or to repay $14.0 million due on February
28, 2009 under a bridge loan facility with Canadian Superior.





Off-balance
sheet arrangements





The
Company has no off-balance sheet arrangements.





Share
capital





As at
April 29, 2008 the Company had 168.6 million Class A common shares and 15.7
million stock options issued and outstanding.







Canadian
      Superior Energy Inc.
            2008
      MD&A
            Page
      9











Financial
Instruments





The
carrying values of financial assets and liabilities approximate their fair value
due to their short periods of maturity and the credit facility bearing interest
at market rates.





Cash,
short-term investments and Nova Scotia offshore term deposits are classified as
financial assets held for trading and are measured at their fair
value.  Gains or losses related to periodic revaluation are recorded
to net income or loss.





Accounts
receivable and the bridge facility are classified as loans and receivables and
are initially measured at their fair value.  Subsequent periodic
revaluations are recorded at their amortized cost using the effective interest
rate method.





Accounts
payable, accrued liabilities, revolving credit facility and convertible
preferred shares are classified as other liabilities and are initially measured
at fair value.  Subsequent periodic revaluations are recorded at their
amortized cost using the effective interest rate method.





Derivatives
are classified as held for trading and measured at their fair
value.  Gains or losses related to periodic revaluation are recorded
to net income or loss.





Risk
Management





In order
to manage the Company’s exposure to credit risk, foreign exchange risk, interest
rate and commodity price risk, the Company developed a risk management
policy.  Under this policy, it may enter into agreements, including
fixed price, forward price, physical purchases and sales, futures, currency
swaps, financial swaps, option collars and put options.  The Company's
Board of Directors evaluates and approves the need to enter into such
arrangements.





Credit
risk





The
Company’s accounts receivable and bridge facility are with natural gas and
liquids marketers, the Government of the Republic of Trinidad and Tobago and
joint venture partners in the petroleum and natural gas business under
substantially normal industry sale and payment terms and are subject to normal
credit risks.  As at December 31, 2008, the maximum credit risk
exposure is the carrying amount of the accounts receivable and accruals of $83.2
million (December 31, 2007 - $36.5 million).  As at December 31, 2008,
the Company’s receivables consisted of $51.8 million (December 31, 2007 - $26.6
million) of Block 5(c) joint interest receivables, including US$29.1 million
receivable (December 31, 2007 – US$19.7 million ) from a related party, $7.4
million (December 31, 2007 – $1.0 million) of Western Canada joint interest
billings, $18.3 million (December 31, 2007 – $4.7 million ) in value added tax
receivable from the Government of the Republic of Trinidad and Tobago and $5.6
million (December 31, 2007 – $5.4 million) of revenue accruals and other
receivables. Purchasers of the Company’s oil, gas and natural gas liquids are
subject to an internal credit review to minimize the risk of
nonpayment.  The Company mitigates risk from joint venture partners by
obtaining partner approval of capital expenditures prior to starting a
project.





The
Company’s allowance for doubtful accounts is currently $0.3 million (December
31, 2007 - $0.7 million).  The Company provided for an additional $0.2
million in allowance and did not write-off any receivables during the year ended
December 31, 2008.





Foreign
exchange risk





The
Company is exposed to foreign currency fluctuations as oil and gas prices
received are referenced to U.S. dollar denominated prices.  At
December 31, 2008, the Company has US$3.6 million in cash and short-term
investments, (December 31, 2007 US$8.3) US$31.1 million (December 31, 2007 –
US$26.5 million) of Block 5(c) joint interest receivables, US$15.0 million
(December 31, 2007 – US$4.8 million) in value added tax receivable from the
Government of the Republic of Trinidad and Tobago, US$42.1 million (December 31,
2007 – US$8.5 million) of Block 5(c) payables, US$2.0 million (December 31, 2007
- nil) of LNG project payables and US$14.1 million (December 31, 2007 – US$13.3
million) of convertible preferred shares.  These balances are exposed
to fluctuations in the U.S. dollar.  In addition, the Company is
exposed to fluctuations between U.S. dollars and the domestic currencies of
Trinidad and Tobago and Tunisia.  At this time, the Company has chosen
not to enter into any risk management agreements to mitigate foreign exchange
risk.







Canadian
      Superior Energy Inc.
            2008
      MD&A
            Page
      10










Risk
Management (continued)





Interest
rate risk





The
Company is exposed to interest rate risk as the credit facility bears interest
at floating market interest rates.  The Company has no interest rate
swaps or hedges to mitigate interest rate risk at December 31,
2008.




Commodity
price risk





The
Company is exposed to fluctuations in prices for natural gas, crude oil and
natural gas liquids, as the majority of the Company's production is currently
sold at spot prices that are subject to volatile trading
activity.  Commodity prices fluctuate in response to, among other
things, domestic and foreign supply and demand, import and export balances,
government regulations, weather, and fluctuations in the availability and price
of other replacement energy sources.  A significant drop in commodity
prices could materially impact the Company's petroleum and natural gas sales,
the volume of production it could produce economically, require downward
adjustments to proved reserves and could materially impact the Company's
financial condition.  In addition, a substantial decrease in commodity
prices could impact the Company’s borrowing base under the credit facility,
therefore reducing the credit facility available, and in some instances, require
a portion of the credit facility to be repaid.





The
Company enters into commodity sales agreements and certain derivative financial
instruments to reduce its exposure to commodity price
volatility.  These financial instruments are entered into solely for
hedging purposes and are not used for trading or other speculative
purposes.  The following commodity price risk contract was in place
during the twelve months ended December 31, 2008.





Term
              Contract
              
              Volume
      (GJs/d)
              
              
              Fixed
      price
              
              
              2008
      Realized lossesFeb
      1, 2008 – October 31, 2008
              Swap
              
              
              2,000
              
              
              $
              7.05
              
              
              $
              (496
              )








Adoption
of new accounting policies





On
January 1, 2008, the Company prospectively adopted CICA Section 1535 Capital
Disclosures.  This Section establishes standards for disclosing
information about an entity’s objectives, policies and processes for managing
its capital structure.





On
January 1, 2008, the Company prospectively adopted the following two new CICA
standards: Financial Instruments - Disclosures (Section 3862) and Financial
Instruments - Presentation (Section 3863), which replace Financial Instruments -
Disclosure and Presentation (Section 3861).  The new disclosure
standard increases the emphasis on the risks associated with both recognized and
unrecognized financial instruments and how those risks are
managed.  The new presentation standard carries forward former
presentation requirements.





On
October 1, 2008, the Company adopted CICA Section 3064 Goodwill and Intangible
Assets.  This section provides guidance on the recognition,
measurement, presentation and disclosure for goodwill and intangible assets,
other than the original recognition of goodwill or intangible assets acquired in
a business combination.  Retroactive application of prior-period
financial statements is required.  Goodwill is the excess of the
purchase price over the fair value of identifiable assets and liabilities
acquired in a business combination.  Goodwill is not amortized and is
tested for impairment annually or more frequently if events or changes in
circumstances indicate that the asset might be impaired.  To assess
impairment, the fair value of the reporting unit is compared to the carrying
amount of the reporting unit including goodwill.  If the fair value of
the reporting unit is less than the carrying value of the reporting unit
including goodwill, then a second test is performed to determine the amount of
impairment.  The amount of the impairment is determined by deducting
the fair value of the individual assets and liabilities from the fair value of
the reporting unit to determine the implied goodwill.  An impairment
loss is recognized for the excess of the carrying value of goodwill over the
implied fair value.





The
Canadian Accounting Standards Board requires all public companies to adopt
International Financial Reporting Standards (“IFRS”) for interim and annual
financial statements relating to fiscal years beginning on or after January 1,
2011. Early adoption is permitted if certain conditions are met. Companies will
be required to provide IFRS comparative information for the previous fiscal
year. We cannot at this time reasonably estimate the impact of adopting IFRS on
our consolidated financial statements.


Canadian
      Superior Energy Inc.
              2008
      MD&A
              Page
      11




Sensitivities





The
following sensitivity analysis is provided to demonstrate the impact of changes
in commodity prices on 2008 petroleum and natural gas sales and is based on the
balances disclosed in this MD&A and the consolidated financial statements
for the twelve months ended December 31, 2008:





($
      thousands)
              
              Petroleum
      and Natural Gas Sales (1)Change
      in average sales price for natural gas by $1.00/mcf
              
              
              6,107Change
      in the average sales price for crude oil and natural gas liquids by
      $1.00/bbl
              
              
              242Change
      in natural gas production by 1 mmcf/d (2)
              
              
              3,140Change
      in crude oil and natural gas liquids production by 100 bbls/d (2)
              
              
              3,342


(1)
            Reflects
      the change in petroleum and natural gas sales for the twelve months ended
      December 31, 2008.


(2)
            Reflects
      the change in production multiplied by the Company’s average sales prices
      for the twelve months ended December 31,
2008.





Quarterly
financial summary


($
thousands except per share and production amounts)


2008
              
              
              2007Q4
              
              
              
              Q3
              
              
              
              Q2
              
              
              
              Q1
              
              
              
              Q4
              
              
              
              Q3
              
              
              
              Q2
              
              
              
              Q1ProductionNatural
      gas (mcf/d)
              
              
              15,726
              
              
              
              17,268
              
              
              
              18,626
              
              
              
              15,123
              
              
              
              15,366
              
              
              
              12,838
              
              
              
              11,802
              
              
              
              13,984Oil
      and natural gas liquids (bbl/d)
              
              
              599
              
              
              
              689
              
              
              
              766
              
              
              
              590
              
              
              
              636
              
              
              
              516
              
              
              
              656
              
              
              
              566Total
      (boe/d)
              
              
              3,220
              
              
              
              3,567
              
              
              
              3,871
              
              
              
              3,110
              
              
              
              3,197
              
              
              
              2,656
              
              
              
              2,623
              
              
              
              2,897Petroleum
      and natural gas sales
              
              
              13,213
              
              
              
              20,494
              
              
              
              24,824
              
              
              
              15,932
              
              
              
              13,039
              
              
              
              10,248
              
              
              
              11,961
              
              
              
              12,599Net
      income (loss)
              
              
              (18,189
              )
              
              
              (2,117
              )
              
              
              (1,589
              )
              
              
              (1,863
              )
              
              
              (9,129
              )
              
              
              (2,865
              )
              
              
              2,187
              
              
              
              (129
              )Earnings
      (loss) per share - basic
              
              
              (0.11
              )
              
              
              (0.01
              )
              
              
              (0.01
              )
              
              
              (0.01
              )
              
              
              (0.07
              )
              
              
              (0.02
              )
              
              
              0.02
              
              
              
              0.00Cash
      flow from operations
              
              
              4,654
              
              
              
              9,330
              
              
              
              10,723
              
              
              
              9,194
              
              
              
              3,033
              
              
              
              2,101
              
              
              
              2,251
              
              
              
              6,470Cash
      flow per share - basic
              
              
              0.03
              
              
              
              0.06
              
              
              
              0.07
              
              
              
              0.07
              
              
              
              0.02
              
              
              
              0.02
              
              
              
              0.02
              
              
              
              0.05





Disclosure
controls and procedures and internal control over financial
reporting





Disclosure
controls and procedures are designed to provide reasonable assurance
that material information is gathered and reported to senior management,
including the Chief Operating Officer (“COO”) and Chief Financial Officer
(“CFO”), as appropriate to allow timely decisions regarding public
disclosure.




Management,
including the COO and CFO, has evaluated the effectiveness of the Company's
disclosure control and procedures as of December 31, 2008. Based on this
evaluation, Management concluded that the Company's disclosure controls and
procedures, as defined by the rules of the Canadian Securities Administrators,
as of December 31, 2008 were not effective.
  Management is also
responsible for establishing and maintaining adequate internal controls over
financial reporting. Management has assessed the effectiveness of the Company's
internal control over financial reporting as at December 31, 2008 based on
criteria established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission ("COSO") to
evaluate the effectiveness of the Company's internal control over financial
reporting.




·
                          The
      Company did not effectively implement certain corporate governance
      policies and;·
                          The
      Company did not have effective policies and procedures governing the
      authorization of transactions including material
    agreements.





Remediation
Effort in 2009




The
Company is taking steps to augment and improve the design of procedures and
controls impacting these areas of weakness in internal controls over financial
disclosure controls, procedures, and reporting.  We have implemented or are
implementing the following measures, which will improve significantly our
internal control over financial reporting:




·
                          The
      Company will implement a delegation of authority to guide decisions and
      provide guidance to the dollar level amount of transactions that can be
      entered into by employees at all levels; and·
                          The
      implementation of a Board of Directors Mandate and a Corporate Governance
      mandate to be reviewed and approved on an annual
  basis.


Canadian
      Superior Energy Inc.
              2008
      MD&A
              Page
      12




Disclosure
controls and procedures and internal control over financial reporting
(continued)




Management
believes that, through implementation of the measures noted above, we will
address the conditions identified above as material weaknesses. We will monitor
the effectiveness of these measures, and our internal control over financial
reporting on an ongoing basis. We will continue to asses our remediation plans
and will take further action, as appropriate, to strengthen our internal control
over financial reporting.




Management
is committed to the ongoing process surrounding the design of effective
disclosure controls and procedures. For the year ended December 31, 2007,
Management identified material weaknesses surrounding the recording of
transactions, the lack of adequate staffing and the safeguarding of monetary
assets. During 2008 Management took steps to augment and improve the controls
surrounding these deficiencies such that these material weaknesses no longer
existed at December 31, 2008. Management will take steps in 2009 to remediate
material weaknesses identified at the entity level for the
current year, through approved authorization limits and increased Board
operating effectiveness.







Critical
accounting estimates





To
prepare the financial statements in accordance with GAAP, management is required
to make judgments and estimates that could influence the financial results of
the Company.  Management continually reviews its estimates, but
changes in facts or circumstances may result in revised estimates and actual
results may differ from these estimates.  A summary of the Company’s
critical accounting polices has been provided in note 2 of the consolidated
financial statements.  The Company's critical accounting estimates are
discussed below.





Petroleum
and Natural Gas Reserves





The
Company uses the full cost method of accounting for its oil and gas activities,
which are dependent on estimated reserves that management believes, are
recoverable from its oil and gas properties.  The process for
estimating reserves is complex and subjective.  The Company's
determination of reserves is based on a combination of:





·
                                geological,
      geophysical and engineering estimates;·
                                future
      production rates;·
                                future
      commodity prices; and,·
                                future
      development and operating
costs.





Management
believes these factors to be reasonable based on the information that is
available as of the time of the estimate of reserves and is subsequently
reviewed by its independent engineers.  Estimates of these factors can
significantly change over time as additional data relating to development,
production, pricing and costs is received for its oil and gas
properties.





All of
the Company’s reserves are evaluated and reported on by independent engineers in
accordance with NI 51-101.  In addition, the Company has established a
Reserves Committee to assist the Board of Directors and the Audit Committee to
review its oil and gas reserves and other related disclosures.  The
Reserves Committee is comprised of three members of the Board of
Directors.





The
Company’s estimate of reserves impacts the accounting for depletion and
impairment expense.  In addition, Canadian Superior’s borrowing base
for the credit facility is determined based on estimates of proved
reserves.





Full
Cost Impairment





The
Company evaluates its oil and gas properties for impairment if a significant
event or change occurs.  This can include a significant decrease in
oil and gas prices, revisions to proved reserves, changes in operating expenses
or changes in its operating environment.





The
Company’s oil and gas properties are evaluated for impairment by comparing the
undiscounted future net cash flows of the property against its carrying
value.  The property is written down to its fair value if the carrying
value is greater than the calculated fair value.  The Company
calculates the fair value based on the discounted cash flow
approach.






Canadian
      Superior Energy Inc.
              2008
      MD&A
              Page
      13




The calculation
of undiscounted future net cash flows by management requires significant
assumptions to be made for future prices and reserves.  The Company's
estimates for future prices are based on benchmark prices compiled by
independent engineers, adjusted to reflect risk management contracts,
transportation expense or quality differentials.




Critical
accounting estimates (continued)





Management believes the
assessment of impairment of oil and gas properties is a critical
accounting estimate primarily due to the complexity of the assumptions used in
the calculation.





The
Company’s oil and gas properties were evaluated for impairment as at December
31, 2008 and based on its estimates, no impairments were required.  In
the existence of an impairment charge, the Company would record an increase in
depreciation and depletion expense for the period.





Goodwill
Impairment





The
Company tests goodwill for impairment whenever an event or circumstances occurs
that may reduce the fair value of a reporting unit below its carrying amount and
at least on an annual basis. The Company’s goodwill impairment test consists of
a two-step process. In step one, the fair value of a reporting unit is compared
to the carrying amount, including goodwill. If the carrying amount of the
reporting unit exceeds fair value the second step is required. The second step
allocates the fair value of the reporting unit to its underlying assets and
liabilities resulting in an implied fair value of goodwill. If the carrying
amount of the reporting unit’s goodwill exceeds the implied fair value of that
goodwill, an impairment loss equal to the excess is recorded in the statement of
operations.





The
process of assessing goodwill for impairment involves determining the fair
values of the Company’s assets using one or more valuation techniques including
present value calculations of estimated future cash flows. This process involves
various assumptions and judgments about future commodity prices, future income,
operating costs and discount rates. Changes in these assumptions or judgments
could result in an impairment of all or a portion of goodwill.





The
Company’s goodwill was tested for impairment as at December 31, 2008. Based on
this review, an impairment of goodwill of $10.4 million (December 31, 2007 –
nil) has been recorded as a non-cash charge to the statement of operations at
December 31, 2008.





Asset
Retirement Obligations





The
Company has a legal obligation associated with the retirement of present and
former operating sites.  Management is required to make significant
estimates and assumptions to calculate the estimated fair value of future
retirement of its tangible assets.  This includes making estimates of
future activities and environmental rules and regulations that could potentially
impact the Company’s future retirement obligation.





The
Company recognizes the fair value of a liability for an asset retirement
obligation in the period in which it is incurred and records a corresponding
increase in the carrying value of the related long-lived asset.  The
fair value is determined through a review of engineering studies, industry
guidelines and management’s estimate on a site-by-site basis.  The
liability is subsequently adjusted for the passage of time and is recognized as
accretion expense in the statement of operations.  The liability is
also adjusted due to revisions in either the timing or the amount of the
original estimated cash flows associated with the liability.  The
increase in the carrying value of the asset is amortized using the
unit-of-production method based on estimated proved developed reserves as
determined by independent engineers.  Actual costs incurred upon
settlement of the asset retirement obligations are charged against the asset
retirement obligation to the extent of the liability recorded.  Any
difference between the actual costs incurred upon settlement of the asset
retirement obligations and the recorded liability is recognized as a gain or
loss in the Company’s statement of operations in the period in which the
settlement occurs.





Income
Taxes





The
calculation of the Company’s income tax provision and future income tax
liability is complex and requires making certain judgments and constant review
of laws and regulations in multiple jurisdictions.  Changes in
facts




Canadian
      Superior Energy Inc.
            2008
      MD&A
            Page
      14











and
circumstances as a result of income tax audits, reassessments and changes in
existing legislation could result in a corresponding increase or decrease in the
Company's provision for income taxes.


Canadian
      Superior Energy Inc.
              2008
      MD&A
              Page
      15


Risk
assessment





There
are a number of risks facing participants in the oil and gas
industry.  Some of the risks are common to all business, while others
are specific to a sector.  The following reviews the general and
specific risks to which the Company is exposed.  The Company's
management realizes that these risks cannot be eliminated, however they are
committed to monitoring and mitigating these risks.





Risk
Management





In order
to manage the Company’s exposure to commodity price, interest rate and foreign
exchange risk, the Company developed a risk management policy.  Under
this policy, it may enter into agreements, including fixed price, forward price,
physical purchases and sales, futures, currency swaps, financial swaps, option
collars and put options.  The Company's Board of Directors evaluates
and approves the need to enter into such arrangements.  At this time,
the Company has chosen not to enter into such risk management
arrangements.





Term
Deposits





At
December 31, 2008, the Company had $15.2 million of term deposits posted as
security against its remaining Offshore Nova Scotia work expenditure
bids.  To the extent that expenditures are not incurred within the
periods allowed, the Company would forfeit its proportionate share of any
remaining deposits relating to the unexpended work commitment, The Canada-Nova
Scotia Offshore Petroleum Board (“CNSOPB”) has an additional extension program
that allows, when approved by the CNSOPB, these expiry dates to be extended up
to nine years by payment of annual extension fees, which can be refunded based
on allowable expenditure rules and drilling activity.  This allows the
Company to extend EL 2406 to December 31, 2010, EL 2415 to December 31, 2012 and
EL 2409 to December 31, 2012 on a year by year basis if the Company
chooses.





Environmental
and Safety





The oil
and natural gas industry is subject to environmental regulations pursuant to
municipal, provincial and federal legislation in Canada and similar legislation
in other countries.  Environmental legislation provides for, among
other things, restrictions and prohibitions on spills, releases or emissions of
various substances produced in association with oil and gas
operations.  The legislation also requires that wells and facility
sites be operated, maintained, abandoned and reclaimed to the satisfaction of
the applicable regulatory authorities.  A breach of such legislation
may result in the imposition of fines or penalties, some of which could be
material.  The Company is committed to meeting and exceeding
environmental and safety standards.





Canadian
Superior’s Board of Directors and management team monitor, develop and implement
policies and procedures to mitigate the environmental and safety risks of the
Company.





Reserve
Replacement





The
Company is dependent on its ability to find, acquire, develop and produce oil
and natural gas reserves.  The Company will need to continually add
new reserves to offset the natural decline and production from existing
reserves.  The Company’s ability to increase reserves is dependent on
its ability to explore and develop its existing properties as well as its
ability to select and acquire new properties or projects.  There is no
assurance that the Company will continue to be able to explore, develop or
acquire the reserves necessary to offset the natural decline and production from
its existing reserves.





To
mitigate this risk, Canadian Superior has assembled a team of experienced
technical professionals who have expertise operating and exploring in the core
areas of the Company.  In addition, the Company targets prospects that
have multi-zone potential and employs advanced geological and geophysical
techniques to increase the likelihood of finding additional
reserves.





Reserve
Estimates





There is
significant uncertainty inherent in the estimating of economically recoverable
oil and gas reserves (including natural gas liquids) and the future net cash
flows to be derived from these reserves.  The Company’s reserves are
estimated by an independent engineering firm.  Estimates are made
based on a number of variable factors and assumptions, including future oil and
gas prices, projected production rates, timing and amount of capital
expenditures, future operating expenses and royalties and impact of regulation
by government agencies.  The Company’s actual production and future
cash flows may vary from its estimates, and such variations could be
material.






Canadian
      Superior Energy Inc.
            2008
      MD&A
            Page
      16











Risk
assessment (continued)





Operational





Oil and
gas exploration, development and production operations are subject to all the
risks and hazards typically associated with such operations, including hazards
such as fire, explosion, blowouts, cratering, sour gas release and oil spills,
each of which could result in substantial damage to oil and natural gas wells,
production facilities, other property and the environment or in personal
injury.  In accordance with industry practice, Canadian Superior is
not fully insured against all of these risks, nor are all such risks
insurable.  Canadian Superior maintains liability insurance in an
amount that it considers consistent with industry practice.  However,
due to the nature of these risks it is possible that liabilities could exceed
policy limits, which could cause the Company to incur significant costs that
could have a materially adverse effect on its financial
condition.  Oil and natural gas operations are also subject to
additional risks, including premature decline of reservoirs and the invasion of
water into producing formations.





Canadian
Superior’s future oil and gas exploration and development activities are
dependent on the Company’s ability to engage drilling and related equipment in
the particular areas where the activities will be conducted.  Demand
for limited equipment or access restrictions may affect the Company's ability to
complete future exploration and development activities.  The Company
is exposed to additional risks associated with oil and gas properties where
Canadian Superior is not the operator, and is dependent on the timing and
success of such operators as the Company will largely be unable to direct or
control the activities.  The Company attempts to mitigate these risks
by developing strong relationships with existing and potential partners,
suppliers and contractors.





Commodity
Prices and Marketing





Canadian
Superior is exposed to fluctuations in prices for natural gas, crude oil and
natural gas liquids, as all of the Company's production is currently sold at
spot prices that are subject to volatile trading activity.  Commodity
prices fluctuate in response to, among other things, domestic and foreign supply
and demand, import and export balances, government regulations, weather, and
fluctuations in the availability and price of other replacement energy
sources.  A significant drop in commodity prices could materially
impact the Company's petroleum and natural gas sales, the volume of production
it could produce economically, require downward adjustments to proved reserves
and could materially impact the Company's financial
condition.





In
addition, a substantial decrease in commodity prices could impact the Company’s
borrowing base under the credit facility, therefore reducing the credit facility
available, and in some instances, require a portion of the credit facility to be
repaid.





Canadian
Superior’s ability to market its natural gas may depend on its ability to
acquire space on pipelines that deliver natural gas to commercial
markets.  The Company may also be affected by deliverability
uncertainties related to the proximity of its reserves to pipelines and
facilities as well as extensive government and regulation relating to price,
taxes, royalties, land tenure, allowable production, the export of oil and
natural gas and many other aspects of the oil and natural gas
business.





Liquidity
and Capital Resources





The
Company generally relies on cash flow from operations, credit facility
availability and equity financings to fund its capital requirements and to
provide liquidity.  Cash is primarily used, and will continue to be
used, to fund acquisitions, exploration and development of petroleum natural gas
properties, expenses for continued operations, G&A costs and/or repayment of
principal and interest outstanding on the credit facility.





The
capital management objective of the Company remained the same as that of the
previous year. The CCAA proceedings have significantly affected the
Corporation’s ability to manage its capital structure in the near
term.





The
Company’s primary short-term objectives of managing capital are:


·
                            To
      ensure a successful restructuring and financial reorganization of the
      Company;·
                            To
      maintain a level of corporate liquidity necessary to fund the Company’s
      operating cycle; and·
                            To
      preserve its financial flexibility in order to benefit from potential
      opportunities as they
arise.


Under
the CCAA proceedings, the Company manages its liquidity and makes adjustments in
response to changes in economic conditions and the risk characteristics of the
underlying assets.


Canadian
      Superior Energy Inc.
                2008
      MD&A
                Page
      17


Risk
assessment (continued)





Technology





The
Company relies on information technology to manage its day-to-day operations and
perform reporting obligations, including the preparation of financial
statements, reporting to joint venture partners and various governments in
relation to payment of royalties and taxes.





Regulatory





Oil and
gas operations are subject to extensive controls and regulations imposed by
various levels of government that may be amended from time to
time.  Canadian Superior’s operations may require licenses and permits
from various governmental authorities.  There can be no assurance that
Canadian Superior will be able to obtain all necessary licenses and permits that
may be required to carry out exploration and development of its
projects.





Title
to Properties





Although
title reviews may be conducted prior to the purchase of most oil and natural gas
producing properties or the commencement of drilling wells, such reviews do not
guarantee or certify that an unforeseen defect in the chain of title will not
arise to defeat a claim of Canadian Superior, which could result in a reduction
of the revenue received by the Company.





Conflicts
of Interest


Certain
of the directors and officers of Canadian Superior are also directors and
officers of other oil and gas companies involved in oil and gas exploration and
development, and as such may, in certain circumstances, have a conflict of
interest requiring them to abstain from certain decisions.





Reliance
on Key Personnel


Canadian
Superior is largely dependent on the performance of its management and key
employees.  The Company does not carry any key person insurance in
effect for management or key employees, and therefore, there is a risk that the
loss of services of such key personnel could have a material adverse effect on
the Company.  In addition, the competition for qualified personnel in
the oil and natural gas industry is intense and there can be no assurance that
the Company can continue to attract and retain all personnel necessary to ensure
the continued exploration, development and operation of its
business.  Investors must rely on the ability, expertise, judgment,
discretion, integrity and good faith of management.





Additional
Information





Additional
information relating to Canadian Superior is filed on SEDAR and can be viewed at
www.sedar.com.  Information can also be obtained by contacting the
Company at Canadian Superior Energy Corp., Suite 3200, 500 – 4th Avenue S.W.,
Calgary, Alberta, Canada T2P 2V6 and on the Company’s website at
www.cansup.com.







Canadian
      Superior Energy Inc.
            2008
      MD&A
            Page
      18