Exhibit 2  2002 ANNUAL REPORT    CANADIAN SUPERIORENERGY INC.   
   CORPORATE PROFILE  Canadian Superior Energy Inc. is a Calgary-based energy company engaged
in the exploration and production of oil and natural gas in Canada.  The Corporation plans to continue increasing
its reserves and production base in Canada through exploration and strategic
acquisitions.  In Atlantic Canada, the
Corporations primary area of focus is on its exploration blocks on the Scotian
Shelf, offshore Nova Scotia, where it is one of the largest offshore acreage
holders.  In Western Canada, the
Corporation is currently focusing on oil and gas prospects in Alberta,
Saskatchewan and British Columbia.  The common shares of
Canadian Superior trade on the Toronto Stock Exchange and the American Stock
Exchange under the symbol SNG.  As at
April 30, 2003, the Corporation had 87.6 million common shares issued and
outstanding.  NOTICE OF ANNUAL GENERAL MEETING  The Annual General Meeting of Shareholders will be held on June 27th,
2003 at 10:30 a.m. in the Viking Room, Calgary Petroleum Club, 319  5th Avenue
S.W., Calgary, Alberta T2P 0L5.  All
shareholders are encouraged to attend. 
Those unable to do so are requested to sign and return the proxy form
mailed with this Report.  ABBREVIATIONS  mcfthousand cubic feet
  
  bcf  billion cubic feetmbbls  thousands of
  barrels
  
  bcfe  billion cubic feet
  equivalentmmcf  million cubic feet
  
  boe  barrels of oil
  equivalentmmcfe  million cubic feet
  equivalent
  
  boe/d  barrels of oil
  equivalent per daymcfe  thousand cubic feet
  equivalent
  
  bbl  barrelmcf/d  thousand cubic
  feet per day
  
  bbl/d  barrels per dayNGLs  natural gas
  liquids, consisting of any one or more propane, butane or condensate
  CONVERSION  All calculations converting natural gas to crude oil equivalent have
been made using a ratio of six mcf of natural gas to one barrel of crude oil
equivalent.  CONTENTS  2002
  Highlights
  
  1
  
  Managements Report
  
  22Message
  to Shareholders
  
  2
  
  Auditors Report
  
  22Operations Review
  
  6
  
  Financial
  Statements and Notes
  
  23Management
  Discussion and Analysis
  
  18
   
   ANNUAL REPORT 2002  2002 HIGHLIGHTS  December 31
  
  2002
  
  2001Financial($000s except per share amounts)Gross Production Revenue
  
  $
  7,741
  
  $
  4,945Cash Flow from Operations
  
  $
  799
  
  $
  1,729Per Share
  
  $
  0.01
  
  $
  0.04Net Earnings (loss)
  
  $
  (28,173
  )
  $
  8,109Per Share
  
  $
  (0.51
  )
  $
  0.20Capital Expenditures
  
  $
  55,025
  
  $
  27,660Working Capital, net of bank debt
  
  $
  (334
  )
  $
  1,310Term Deposits
  
  $
  12,032
  
  $
  21,115Bank Debt
  
  5,150
  
  nilShares Outstanding at Year-end
  
  65,031,673
  
  50,419,708
  *OperatingAverage ProductionNatural Gas (mcf/d)
  
  4,725
  
  2,491Oil & NGLs (bbls/d)
  
  59
  
  19Barrel of Oil Equivalent
  
  846
  
  434Average Selling PriceOil & NGLs ($/bbl)
  
  $
  35.69
  
  $
  36.03Natural Gas ($/mcf)
  
  $
  4.04
  
  $
  5.23Reserves (Gross)**ProvenNatural Gas (mmsf)
  
  25,953
  
  28,586Oil & NGLs (mmbl)
  
  1,508
  
  351Barrel of Oil Equivalent (mboe)
  
  5,834
  
  5,155Proven and Risked ProbablesNatural Gas (mmcf)
  
  35,964
  
  41,452Oil & NGLs (mmbl)
  
  3,780
  
  1,636Barrel of Oil Equivalent (mboe)
  
  9,774
  
  8,545Undeveloped Land (acres)**Gross
  
  1,106,371
  
  985,058Net
  
  1,022,509
  
  982,376Wells DrilledGross
  
  17.0
  
  17.0Net
  
  16.5
  
  16.1  
 *    Including Special Warrants **   December 31, 2002 values Pro-Forma Drumheller
asset acquisition.   1 
   MESSAGE TO SHAREHOLDERS  2002 was an exciting year and a year of
substantial achievement for Canadian Superior. During the year Canadian
Superior focused on aggressively developing existing assets and targeting new
growth opportunities.  We remained well
capitalized and we worked hard to fortify the basic foundation blocks required
for sustainable growth.  Since the
beginning of 2002, we have made significant progress in expanding our Western
Canadian production and land holdings. 
We also commenced exploration initiatives on our East Coast Offshore holdings
with the drilling of our first Offshore Nova Scotia exploration well.
Highlights of 2002 include:  Record production and revenue levels, up 95% and 57%, respectively,
compared to 2001. NAV rose to a record level of $188 million ($2.01 per share). Established a major joint venture with El Paso Corporation (El
Paso) for development of our extensive offshore East Coast landholdings. Drilled of our first Offshore Nova Scotia exploration well whereby we
became the first junior/intermediate sized company to operate drilling
activities in the harsh Offshore Nova Scotia operating environment. Conducted significant land acquisitions and prospect development in
several high impact Western Canadian areas, including East Ladyfern, Altares
and Umbach. Acquired El Pasos Drumheller area oil and gas assets for
approximately $65 million, effective October 1, 2002. Listing of the Corporations shares for trading on American Stock
Exchange (AMEX) to further expand capital market presence and liquidity. Completed $29.9 million in equity financings during the year to
maintain a strong balance sheet.  The
Drumheller acquisition provides Canadian Superior with a significant Western
Canadian core operating base. It was not completed until the first quarter of
2003 and therefore was not included in our 2002 operating results. However the
transaction added approximately 2,600 boe/d of sweet gas (75%) and light oil
(25%) to our production base, approximately 4.2 million boe to our proved
reserves and approximately 5.5 million boe to our established reserves.  In addition, the purchased assets include
underutilized gas plant capacity, strategic production facilities, a large
undeveloped land position comprised of 170,000 acres, and a healthy portfolio
of 40+ locations identified for development drilling.  Additionally, a light oil pool infill drilling and waterflood
program is expected to add from 1 to 4 million barrels of light recoverable oil
reserves not included in the Corporations expanded reserve base related to the
El Paso acquisition.  Also,
during 2002 we expanded our Western Canadian asset base to significantly
increase our East Ladyfern area holdings to 22 sections of contiguous lands
located updip of the main Ladyfern natural gas field.  In January 2003, drilling operations commenced on the first two
exploration wells of a planned multi-well East Ladyfern program.  As of the end of April 2003, two wells have
been drilled and have resulted in two Slave Point natural gas discoveries.  We are optimistic that these natural gas
discoveries will result in a new large gas field being established on our
extensive land holdings.  Canadian
Superior holds a 75% working interest in the first two wells with a major oil
and gas company farming-in to earn a 25% working interest.  On
the East Coast, Offshore Nova Scotia, we operated our first exploration
well.  The Marquis L-35/L-35A well
succeeded in confirming the targeted play type, the Abenaki reef reservoir, and
porosity.  Although this well did not
encounter commercial quantities of natural gas, based on the information
obtained from this first well, we intend to drill a second Marquis within the
next year.  The Marquis L-35/L-35A
well was drilled for a total cost of approximately $45 million.  Canadian Superior and El Paso are currently
in the process of shooting additional seismic on the Marquis Project to
identify an optimal Abenaki Reef location for the next Marquis well to be
drilled updip from the L-35/L-35A well within the next year.  EXPANDED WESTERN CANADIAN PRODUCTION  2 
   In
April 2003, we were pleased to announce that El Paso would once again farm-in
and agree to participate with us in the drilling of a second East Coast
exploration well.  El Paso has an
experienced and talented exploration, production and pipeline technical group
with resources and expertise that represents a tremendous partner asset for
Canadian Superior.  Our second East
Coast exploration well is to be drilled on our 101,800 acre Mariner Project
lands.  It will be one of the deepest
wells to be drilled in Canada during 2003. 
Preparation activities for drilling are proceeding ahead on schedule.  During the third quarter of 2002, we
completed a $3.5 million 2,200 kilometre high density seismic program with El
Paso Oil & Gas Canada, Inc. The Environmental Assessment for Exploration
Drilling has been completed and approved. 
Field work for site surveys commenced early in 2003.  The well is to be drilled in shallow waters (less
than 180 feet) to a target depth of approximately 19,685 feet at an estimated
cost of approximately $45 million D&A and $60 million completed.  This well will evaluate one of three major
Cretaceous structures identified on the Mariner Project targeting potential
reserves in excess of 1 tcf directly offsetting the 1.6 tcf Venture gas
field.  Drilling is currently scheduled
to commence in the late summer of this year.  In
relation to our East Coast drilling expenditures, we intend to continue to minimize
our financial outlay requirements wherever possible through promoted farm-out
transactions.  CORPORATE
ACCOMPLISHMENTS SINCE JANUARY 1, 2002  EAST COAST, OFFSHORE
NOVA SCOTIA  April 23, 2002:  Announced a
joint venture with El Paso Oil & Gas Canada, Inc., an indirect subsidiary
of El Paso Corporation (NYSE: EP), to develop Canadian Superiors land holdings
in the shallow waters of the Scotian shelf located Offshore Nova Scotia. May 23, 2002:  Announced the
contracting of the Rowan Gorilla V Rig for the initial drilling of the Canadian
Superior/El Paso Marquis Natural Gas Project Offshore Nova Scotia.  The Rowan Gorilla V is one of the largest
jack-up drilling rigs operating in the world. July 2, 2002:  Announced the
commencement of the drilling on the Marquis L-35/L-35A exploration well
located Offshore Nova Scotia, Canada. September 11, 2002:  Completed
the operation of the drilling of the Marquis L-35/L-35A well on budget, and
ahead of schedule. September 20, 2002:  Commenced
the acquisition of 2,200 kilometres of high density seismic data on the
Mariner Project to identify several highly prospective drilling targets. As at January 1, 2003, McDaniel & Associates Consultants Ltd
appraised the Offshore Nova Scotia acreage held by Canadian Superior at $91
million.  WESTERN CANADA  During 2002, Canadian Superior worked hard to assemble and enhance
significant land positions in several high impact Western Canadian areas,
including East Ladyfern, Altares and Umbach. November 18, 2002:  Announced
the acquisition in Northwest Alberta of a major acreage position located updip
of the main Ladyfern gas field. 
The  10 sections of land,
acquired at the Government of Albertas November 13, 2002 Alberta Petroleum and
Natural Gas Land Sale, complement 12 sections of land previously acquired by
the Corporation through land agents during the previous 18 months.  Several major Slave Point amplitude
anomalies analogous to the main Ladyfern gas field have been identified on our
acreage.  Drilling and casing of two of
the four planned East Ladyfern well locations occurred in the first quarter of
2003. The first two drilled exploration wells resulted in Slave Point natural
gas discoveries.  3 
   During 2002, we examined our Western Canadian asset mix and
determined that our asset base was too heavily weighted to winter access
activity areas.  Our Western Canadian
drilling programs, scheduled for winter access areas in Alberta and British
Columbia, were delayed significantly due to the lack of freeze-up conditions.
Accordingly, Canadian Superior focused on identifying a suitable acquisition
characterized by stable existing production, year-round accessibility and low
risk, low cost development potential. On January 13, 2003, Canadian Superior
entered into an agreement to acquire El Pasos Drumheller Area oil and gas
assets, production facilities, gas plants and undeveloped lands located in
Central Alberta, effective October 1, 2002, for approximately $65 million.  Approximately $53.5 million, net of purchase
price adjustments of $11.5 million (primarily related to post October 1, 2002
production), was paid for this acquisition.  CORPORATE  On September, 2002, common shares of Canadian Superior were listed
and commenced trading on the American Stock Exchange under the symbol SNG. Completed $29.9 million in common share and flow-through common share
financings in 2002 to maintain balance sheet strength.  After year-end, an additional $35 million of
equity financing was completed to facilitate the closing of the Drumheller area
asset acquisition. September 18, 2002:  Announced
a normal course issuer bid to purchase, through the facilities of The Toronto
Stock Exchange, up to 2,855,000 common shares during the next 12 months. In
2002, a total of 69,700 shares were acquired under the issuer bid.  CORPORATE GROWTH
STRATEGY  Given that we have now established a
stable operating platform in Western Canada, we will continue to focus on
internally generated opportunities and further acquisition opportunities
similar to the Drumheller area asset purchase.  As
mentioned above, the Drumheller area production purchase from El Paso was
completed on March 21, 2003 for a purchase price of approximately $65 million
(approximately $53.5 million net of adjustments).  The acquisition provides Canadian Superior with a large core
operating area that is accessible on a year-round basis.  The acquisition is accretive to our
reserves, production and cash flow based on an attractive purchase price of
$20,576 per daily flowing boe (6:1). 
The Drumheller acquisition includes approximately 2,600 boe/d of
company-operated sweet gas and light crude oil production, approximately 4.2
million boe of proved reserves, approximately 5.5 million boe of established
reserves, and high working interests in 170,000 gross acres of land (106,693
net acres).  The transaction includes
extensive seismic data and key infrastructure assets consisting of interests in
three gas plants, three oil batteries, 20 production facilities and 130
kilometres of company-operated pipelines. 
The acquired production is comprised of 75% natural gas and 25% light
sweet crude.  Approximately 40 high
working interest drilling locations have been identified for drilling during 2003
on the Drumheller area undeveloped lands with an estimated risked potential to
add approximately 2,000 boe/d of net production to Canadian Superior.  During
2002, Canadian Superior invested approximately $55 million in capital
projects.  Our strategic initiatives,
including the acquisition of Drumheller area assets early in 2003, have
resulted in a substantial increase in both our asset base and the opportunities
available for future growth since the beginning of 2002.  FORTY HIGH INTEREST DRILLING LOCATIONS  4 
   During 2003, we intend to continue to:  Grow our Western Canadian cash flow and production base focusing on
the Drumheller area assets and on high impact Western Canadian plays; Pursue balanced capital programs focused on both deep and shallow
gas, including production optimization, workovers, low risk drilling, high
impact exploration and acquisition opportunities; Allocate capital to projects and activities that provide strong
long-term rates of return; Continue with further drilling on our  world-class Mariner, Marquis, and Mayflower projects; Leverage high impact exploration plays through industry participation
to increase exploration reach, maximize rates of return and spread risk; Increase efficiencies and reduce operating costs; and Maintain a strong balance sheet.  The
combination of maintaining a strong balance sheet, disciplined analytical
assessment methods and strong Management, will allow us to be confident that we
can continue to deliver solid sustainable returns and value to our
shareholders.  Our target Western
Canadian production exit rate for 2003 is 5,000 boe/d.  OUTLOOK  Looking to the future, we intend to
maintain a strong balance sheet and we intend to continue to target assets and
opportunities that are viewed as attractive, consistent with our expertise and
manageable.  In relation to new activity
areas, we intend to proceed with projects that capitalize on the expertise we
have developed in conventional Western Canadian operations and in Offshore Nova
Scotia operations.  In relation to
offshore activities, we intend to consistently minimize our financial outlay
requirements wherever possible through promoted farm-out transactions to
provide maximum leverage for shareholders at minimal cost.  During
the last twelve months, our common shares have continued to trade actively. The
AMEX listing has expanded our market presence into the U.S. and has added
additional liquidity.  Our share price
on the TSX closed at $1.50 on December 31, 2002, down slightly from $1.57 on
December 31, 2001 in spite of a very difficult stock market.  Our stock continues to trade actively
averaging approximately 217,700 shares per day in 2002 and 255,400 shares per
day to date in 2003.  At
December 31, 2002, pro forma the Drumheller area asset acquisition, the net
asset value of the Corporation has grown to a record level of $188 million with
our estimated net asset value per share equal to $2.01 per share.  This does not reflect the value of our East
Ladyfern discovery.  On
the East Coast, we intend to continue drilling on our world-class projects.
In Western Canada, we intend to proceed actively with a combination of low risk
development and high risk exploration drilling which should allow us to meet
our targeted Western Canadian exit rate for 2003 of 5,000 boe/d.  Respectfully
submitted on behalf of the Management, Staff and Board of Directors of Canadian
Superior Energy Inc.    Greg
S. Noval
President & CEO
May 12, 2003   5 
   OPERATIONS  
REVIEW  PRINCIPAL OIL AND GAS
PROPERTIES  Canadian Superior has made substantial
progress along two parallel paths; establishing secure cash-flow from
conventional Western Canadian oil and gas assets coupled with ongoing
world-class exploration on our high impact Offshore Nova Scotia basin plays.    EAST COAST, OFFSHORE
NOVA SCOTIA  During the past year, Canadian Superior
commenced Offshore Nova Scotia exploration activities with the drilling of our
first offshore exploration well and the acquisition of a seismic program that
has confirmed our next drilling location. Canadian Superior is the fourth
largest public company acreage holder in the world class Offshore Nova Scotia
basin.  In the Offshore Nova Scotia
basin, we hold four large offshore exploration licenses.  These four licenses are now grouped and
identified as separate projects: the Marquis Project (2 licenses); the
Mariner Project (1 license); and the Mayflower Project (1 license).  Canadian Superior holds interests in
approximately 933,800 acres of Offshore Nova Scotia licenses.  Our licenses are located close to existing
Sable Island project infrastructure and to planned infrastructure that is to
supply gas to Northeastern United States natural gas markets.  McDaniel
& Associates Consultants Ltd has appraised our undeveloped Offshore Nova
Scotia lands at a fair market value of $91.0 million as at December 31, 2002.  The
past year was highlighted by several achievements Offshore Nova Scotia. First
and foremost was our joint venture agreement with El Paso Corporation (El
Paso). El Pasos involvement with Canadian Superior was formalized in April
2002 with the signing of significant joint venture agreements for the Marquis
Project.  Under the   6 
   Joint
Venture Agreements, Canadian Superior was effectively carried for 100% of the
initial $30 million of well expenditures incurred in the drilling of the
Marquis L-35/L-35A well.  El Paso
participated with Canadian Superior in the creation of an expert joint venture
technical group housed in Canadian Superiors East Coast office, located in
Halifax, Nova Scotia. This technical team possesses world class expertise
directed at developing Canadian Superiors offshore projects.  El Paso has a long-term mandate to
remain active in Offshore Nova Scotia exploration and development programs. The
Marquis and Mariner projects in which El Paso is participating are positioned
to become anchor gas supply sources for the proposed El Paso US $1.8 billion
Blue Atlantic Transmission System. 
This pipeline system will export natural gas from Offshore Nova Scotia
to New York.    Marquis Project (50%
WI, Operated)  The Marquis Project encompasses two
exploration licenses with an aggregate of approximately 112,065 contiguous
acres located in shallow water depths (less than 180 feet) in close proximity
to the existing Sable Island project producing infrastructure.  In the July to September period in 2002,
Canadian Superior operated the drilling of its first Offshore Nova Scotia
exploration well, the Marquis L-35/L-35A well, with its partner El Paso. This
well was drilled safely and the well confirmed the presence of porous Abenaki
reef reservoir that occurred in three separate zones within the massive Abenaki
reef complex.  The presence of reservoir
in the Marquis L-35 and sidetrack L-35A well bores establishes that the Deep
Panuke type of play is present within the Marquis Project lands.  Our primary exploration target in the
Marquis Project continues to be a large carbonate reef bank reservoir
analogous to EnCanas Deep Panuke discovery (25 km directly on trend to the
southwest of Marquis).  EnCanas Deep
Panuke discovery is expected to commence production at an estimated rate of 400
mmcf/d.  A
3-D seismic program is planned to further delineate and define the next planned
Marquis well location which will be drilled structurally up-dip from the
Marquis L-35/L-35A well.    ATTRACTIVE OFFSHORE NOVA SCOTIA PROJECTS   7 
   Mariner Project
(100% WI, subject to Farmin)  The Mariner Project lands were
acquired at a Canada-Nova Scotia Offshore Petroleum Board Call for Bids in
November, 2001 and our successful work expenditure bid of $15.5 million was
based on proprietary seismic data acquired by Canadian Superior.  The exploration license comprising the
Mariner Project is 101,835 acres in size.   
On April 23, 2002, Canadian Superior announced it had obtained a
commitment from El Paso to participate in a detailed infill seismic survey for
the purpose of evaluating a drilling location on the Mariner Project.  Canadian Superior and El Paso jointly
acquired a large high-density seismic data set in late 2002.  This newly acquired data, consisting of
2,200 kilometres of seismic, combined with our existing seismic data was
processed and interpreted in detail to confirm the Mariner Project
viability.  The seismic interpretation
yielded three distinct structures similar to the nearby producing Venture gas
field.  The Venture gas field, located
less than 8 kilometres from the Mariner Project acreage, is the largest
discovered field within the Sable Island project and contains an estimated 1.6
tcf of recoverable natural gas reserves.  On March 31, 2003, El Paso formally
committed to farm-in and participate in the drilling of the first Mariner
Project well. El Paso has the opportunity to earn a similar interest in the
Mariner Project as it earned in the Marquis Project. We are targeting
reserves accumulations of over 1 tcf. 
The estimated well cost is $45 million (D&A) and $60 million
completed.  The
planned Mariner Project well location is updip and on trend in the same fault
block as a previously drilled well the Mobil Arcadia J-16.  The Mobil Arcadia J-16 well, is located
approximately six kilometres north of the large producing Venture gas field,
has indicated proven and possible reserves of over 250 bcfe of natural gas in
place, and is located 13 kilometers east of our first well location.  Canadian
Superiors and El Pasos joint technical and operating teams are aggressively
pursuing the necessary regulatory permits, designing the well and procuring
equipment and supplies to safely drill a well on one of the three structures
identified in our Mariner Project in 2003.     8 
   Mayflower Project
(100% WI, Operated)  The Mayflower Project exploration
license, 100% owned by Canadian Superior, was acquired at the Canada-Nova
Scotia Offshore Petroleum Board Call for Bids in November, 2001 based on
detailed geological and seismic data assessments conducted on the license area
by our technical staff.  The Mayflower
Project is located in the western portion of the Scotia Basin approximately
285 miles east of Boston, Massachusetts. 
The Mayflower Project license area covers 720,000 acres and is in
water depths exceeding 500 meters.  Within
the Mayflower Project lands Canadian Superior has identified three large
closed structures flanked by distinct mini basins which have stacked turbidite
sands and massive basin floor fans. 
These types of prospects have been successfully explored in other basins
along the Atlantic margin, (including offshore West Africa, Brazil and the Gulf
of Mexico), and contain the potential for up to one billion barrels of oil
equivalent reserves . The discovery by Marathon and their partners at Annapolis
of a reported 5-15 tcf gas field (Source: March 22, 2003 Calgary Herald
Business section from the Canadian Press Halifax) in a turbidite deposit
Offshore Nova Scotia has proven the turbidite play concept and establishes that
there is hydrocarbon source rocks and reservoir in the deep water plays.
Several major operators, including Shell, Imperial Oil and EnCana are planning
for other deepwater wells in the area and, accordingly, we are very encouraged
with the commercial potential of our Mayflower Project targets.  Canadian
Superior intends to acquire extensive seismic data on the Mayflower Project
lands during 2003 with drilling planned for 2004.  The
Canadian Superior website at www.cansup.com
contains detailed Nova Scotia Offshore maps and project descriptions.  WESTERN CANADA  During the past year, our primary focus
was directed toward our East Coast Offshore Nova Scotia development, however,
we continued to develop our Western Canada asset base focusing on several areas
in Alberta, British Columbia and Saskatchewan. 
Developments were primarily confined to first quarter 2002 activities
in:  i)Northwest Alberta:
In the Venus, Windfall, Boundary Lake and Bison Lake areas; ii)Northeastern British Columbia: In the Parkland, Umbach and Altares
areas; and iii)Saskatchewan:  Frenchman
Butte, Makwa, and Bronson areas.  These
areas presented challenges to the Corporation in that the majority of our
production activities prior to year end were located in winter access only
areas.  In spite of this, our average
production during the year reached a record level of 846 boe/d, up 95% from 434
boe/d produced during 2001.  The
Western Canadian properties are concentrated in these areas of activity with
projects ranging from low risk development to high impact, large reserves based
exploration plays. Western Canadian acreage holdings were increased to 126,020
gross acres (105,269 net acres) in 2002.  During
2002, the composition of the Corporations Western Canadian asset mix was
carefully examined. The concentration of assets in winter access activity areas
was identified as a vulnerability. 
Scheduled winter access programs had the potential to be deferred
significantly if freeze-up conditions were not present in normally expected
time periods.  As a direct result of
this examination process, we focused on evaluating production and land
purchases to establish a new large base of assets located in year-round
accessible activity areas.  This process
resulted in acquisition of El Pasos Drumheller area assets early in 2003. This
acquisition added approximately 2,600 boe/d (6:1 - 75% natural gas) of
production, proven reserves of 4.2 million barrels of oil equivalent, of which
92% are Proved producing, estimated established reserves (Proved + 1/2
Probable) of 5.5 million barrels of oil equivalent, underutilized gas plant
capacity, strategic production facilities, a large undeveloped land position,
and several low cost, low risk locations ready for immediate drilling with
short tie-in distances.  The $65 million
El Paso asset acquisition agreement was announced on January 13, 2003,
effective October 1, 2002, was closed on March 20, 2003.  ADDED 2600 BOE/D - 75% NATURAL GAS  9 
   A purchase price of approximately of
$53.5 million, net of adjustments of $11.5 million primarily related to post
October 1, 2002 production, was paid for this acquisition. This equates to
$20,576 per flowing boe/d (6:1) and $10.59 per established boe. The Drumheller
area asset acquisition is accretive on both a cash flow and production basis.  The identified drillable locations, have the
potential to add approximately 2,000 boe/d on a risked basis prior to year end.
The Drumheller acquisition provides us with a core long-term operating base
that can be accessed and developed on a year-round basis.  As
at December 31, 2002, the value of our Western Canadian assets including the
Drumheller acquisition, which represents 72% of our established reserve base,
was approximately $89 million. The Drumheller Acquisition increases our Western
Canadian land holdings to 290,430 gross acres (206,325 net acres) with a high
average working interest of over 70%. Canadian Superior currently expects to
achieve a 2003 exit rate production target of 5,000 boe/d.    ALBERTA  East
Ladyfern (75-100% WI, Operated)  Canadian Superior has assembled an
attractive acreage position of approximately 14,080 gross acres of lands in the
active Ladyfern area. A portion of these lands (6,400 acres) were acquired at
the Government of Albertas November 13, 2002 Alberta Petroleum and Natural Gas
Land Sale for a total purchase price of $1,249,740 ($195 per acre). The
Corporations East Ladyfern play is located in Northwest Alberta, 65 miles east
of Fort St. John, British Columbia, up-dip from the main Ladyfern gas field.
Detailed proprietary seismic was acquired by Canadian Superior to evaluate
these lands for purchase and to facilitate the choosing of the first four
drilling locations. Several major Slave Point amplitude anomalies analogous to
the main Ladyfern gas field and other major gas field in the area, have been
identified on seismic that covers our acreage.   10 
   The main Ladyfern gas fields reserves
potential is estimated to be in excess of 1 tcf of natural gas. It is one of the
largest discoveries in Western Canada in the past 15 years. The Ladyfern
gasfield currently accounts for approximately 4% of Western Canadian gas
production. The Murphy/Apache Ladyfern discovery at A-097-H/094-H-01 tested at
rates in excess of 100 mmcf/d of natural gas.  During
2002, Canadian Superior initiated the detailed preparations for the drilling of
our East Ladyfern area wells. Drilling and casing of two of the four planned
East Ladyfern well locations occurred in the first quarter of 2003. The first
two drilled exploration wells are Slave Point natural gas discoveries. We are
optimistic that these natural gas discovery wells will be developed as part of
a new gas field on our extensive holdings in the East Ladyfern exploration
area.  Planning is proceeding for the
drilling of two additional wells in 2003, followed by a multi-well program to
develop this newly discovered field. Since East Ladyfern is a winter access
only area, we will endeavour to fully evaluate and test our two discovery wells
in the next drilling season. We have already submitted pipeline and facilities
applications required to construct the infrastructure required to tie-in the
first two gas wells.  The
recently discovered East Ladyfern reserves have not been included in the Corporations
year-end reserves or in the year-end Net Asset Value calculation. Canadian
Superior holds a 75% operated working interest in the first two wells. El Paso
has farmed in and participated in order to earn a 25% working interest.  Venus
(100% WI & Farm-in, Operated)  This property, located 50 miles
northeast of the East Ladyfern area, has been a challenge to deal with. During
2002, several exploration wells were drilled and completed.  Initial production of up to 10 mmcf/d was tested
from one well and subsequently this well was placed on production at an average
rate of 2.0 mmcf/d for a period of 4 months. Subsequent to this, production
from this well declined with associated water, which has presented challenges
from a water disposal standpoint which we expect to address next winter in this
winter access only area. Canadian Superior is evaluating the viability of other
wells coming onstream and has negotiated a farm-in to drill another well up-dip
on the productive Slave Point reef trend. Canadian Superior has increased its
acreage holdings to 14,784 gross acres of lands in the Venus area of Alberta.  Windfall
(100% WI, Operated)  Canadian Superior has increased its
holdings to approximately 5,920 acres in the Windfall area south of Edson.
During 2002, two additional wells were drilled and placed on production.
Production averaged 2.3 mmcf/d and 48 bbls per day of NGLs in December 2002.
Facilities and pipeline balancing, coupled with zone completions in these wells
are underway to maximize production. Following the interpretation of recently
acquired seismic, a three well development program is planned for 2003.  In addition, recent seismic interpretation
has indicated a deeper oil bearing objective that may result in a high impact
exploration well being drilled in 2003.  Other Alberta Activity
Areas  In the Boundary Lake area of
Northwestern Alberta, Canadian Superior successfully drilled and cased three
wells (net 50% WI, operated) with a large industry partner, Husky Oil. Two of
these wells were placed onstream in 2002, with an average production rate of
1.25 mmcf/d over a 5-month period. During 2002, Canadian Superior increased its
acreage position in this key area to a total of 12,480 gross acres (9,504 net
acres). Additional seismic has been acquired, a deeper oil target has been
identified, and additional wells are planned for 2003.  In
the Bison Lake area in North Central Alberta (100% WI, operated), Canadian
Superior expanded its land holdings and continued development of multi-zone
shallow targets during 2002 and into the first quarter of 2003. Canadian
Superior now has operated land holdings totalling 26,240 acres. Production from
the Bison Lake area averaged 1.5 mmcf/d over an 8 month period in 2002.
Additional wells may be drilled to examine the Wabamun potential on the
Corporations lands.  In
the Twinning area in Central Alberta (66.7% WI, operated), the Corporation
produced from two wells at an average of 425 mcf/d plus 14 bbls per day of NGLs
(net) during 2002.  "EAST LADYFERN TWO SUCCESSFUL GAS
WELLS"   11 
   BRITISH COLUMBIA  In Northeast British Columbia, Canadian
Superior has land holdings that cover 13,938 gross acres (10,745 net acres).  Parkland
(100% WI, operated)  In Parkland, south of Ft. St John, the
Corporation holds 5,120 acres of land. A successfully drilled well is expected
to be completed and production tested in 2003. 
Further development drilling is planned for this high impact area.  Umbach  (62.5% WI, operated)  At Umbach, north of Fort St. John,
Canadian Superior operates one well that averaged in excess of 250 mcf/d of gas
and 6.5 bbls of NGLs over an 8-month period. 
The Corporation has land holdings totalling 5,557 gross acres (3,994 net
acres) and has acquired a large database of seismic in this play area.  To date our technical team has defined a
deep objective in the Slave Point formation that is on trend south and west of
the Ladyfern area in the expanding Slave Point reef natural gas play. This
prospect has received considerable farm-in interest from industry. The deep
objective has the potential for large reserves-based natural gas play.  Further land acquisitions are expected in
this exploration area. It is anticipated that this attractive high impact play
will be proposed for drilling in 2003.  Altares
(50% WI, operated)  Altares is a 50% working interest land
holding located west of Fort St. John, British Columbia.  Canadian Superior has acquired 3,200 gross
acres (1,600 net acres) on this foothills over-thrust prospect.  A well is planned for drilling in late 2003
targeting the Mississippian formation on this high impact prospect.  This prospect is directly on trend and
analogous to the Kobes Creek natural gas field located in Northeast British
Columbia.  SASKATCHEWAN  In Saskatchewan, Canadian Superior
holds interests in 7,137 net acres. 
Bronson Lake, Frenchman Butte and Makwa are Canadian Superiors
producing properties.  These properties are
relatively mature in nature.  Natural
gas production from our Saskatchewan properties averaged 675 mcf/d in
2002.  Drilling opportunities on new
lands acquired during 2003 will be pursued to add low risk natural gas
production due to the attractiveness of low development and operating costs.  DRUMHELLER ASSET
ACQUISITION  On March 20, 2003, Canadian Superior
closed on a strategic high working interest production acquisition with core
assets located in the Drumheller area of Central Alberta.  The Drumheller property acquisition is highly
accretive and will dramatically increase Canadian Superiors cash flow and
production base.  The effective date for
transaction adjustments was October 1, 2002; however, due to accounting rules,
it cannot be booked into our financial statements until late March of 2003 (the
closing date of the transaction).  The
unadjusted purchase price was approximately $65 million. Purchase price
adjustments reduced the price paid for this acquisition by $11.5 million.  Primarily as a result of high commodity
prices during the period between the October 1, 2002 effective date and the
March 20, 2003 closing date, the net closing price was $53.5 million.  The acquisition adds 2,600 boe/d of
production at an effective cost of $20,576 per flowing barrel oil per day (6:1)
and $10.59 per established boe.  The
Drumheller area asset acquisition is a strategic purchase that establishes a
year-round access core area with multiple low risk prospects for oil and
natural gas.  The purchase includes
170,000 gross acres (106,693 net acres) of land, access to extensive seismic
data, and key infrastructure interests (three gas plants, three oil batteries,
20 production facilities and 130 kilometres of company-operated
pipelines).  Our technical team believes
that deeper horizons can be targeted to add reserves and production on a cost
effective basis.  Approximately 40
drillable locations exist with the potential to add up to 2,000 boe/d by the
end of 2003.   12 
   Looking forward, we intend to increase
the value of the Drumheller area assets by drilling identified low risk
locations with short tie-in distances, initiating waterflood programs to
increase deliverability and recovery factors, executing an aggressive
exploration program on the large base of high working interest undeveloped
lands, and increasing utilization of existing capacity in owned plants and
production facilities.  This
acquisition, in combination with our other assets, provides Canadian Superior
with a stable growth platform for many years to come.  2003 GROWTH STRATEGY  Given that we have now established a
stable operating platform in Western Canada, our focus over the next 12 months
will be directed at five key corporate objectives.  These corporate objectives are as follows:  1.   Continue to grow Western Canadian cash flow
and production base focusing on the Drumheller acquisition and high impact
Western Canadian plays. 2.   Maintain a strong balance sheet. 3.   Targeted exit rate for 2003 production of
5,000 boe/d of oil, NGLs, and natural gas. 4.   Continue with further drilling and
development of world-class Mariner, Marquis and Mayflower East Coast
projects to deliver home runs for shareholders! 5.   Further expand underlying value for
shareholders through the drill bit and by strategic acquisitions.  We are confident that this focused
strategy will reward shareholders handsomely during the upcoming year.      13 
   RESERVES SUMMARY January 1, 2003
Reserves (Pro Forma Drumheller Acquisition)  Oil
  
  Gas
  
  NGL
  
  MBOE(MSTB)
  
  (MMCF)
  
  (MBBLS)
  
  (6:1)Gross Proven Producing
  
  1,091
  
  21,775
  
  274
  
  4,994Gross Proven Non-Producing Developed
  
  74
  
  4,178
  
  69
  
  8391,165
  
  25,953
  
  343
  
  5,834Probable (50% risked)
  
  2,086
  
  10,011
  
  186
  
  3,940Established
  
  3,251
  
  35,964
  
  529
  
  9,774Value of Reserves (10% discounted
  cash flow M$)
  
  2002
  
  2001Established
  
  89,013
  
  51,524Proven
  
  68,786
  
  35,321  The above reserve table and values combine
a Gilbert Laustsen Jung Associates Ltd evaluation of the Corporations
Drumheller acquisition properties, evaluated as at October 1, 2002, with the
Corporations pre-existing properties, evaluated by Chapman Petroleum
Engineering Ltd  as at January 1,
2003.  Fourth quarter 2002 Drumheller
production represents approximately 5% of the total Drumheller proved reserves
included above.  On a boe basis, the
newly acquired Drumheller properties represent approximately 72% and 57%,
respectively, of combined proven and established corporate reserves. Both
engineering firms used their respective price decks, which were not materially
different.  PRICING ASSUMPTIONS Per Gilbert Lausten
Jung Associates Ltd pricing  ARTC Credits (5)AECO
  
  NGL
  
  NGL
  
  NGL
  
  Rate
  
  MaxWTI (1)
  
  Price (2)
  
  Spot Gas (3)
  
  Propane
  
  Butane
  
  Pentanes
  
  %
  
  M$($US/STB)
  
  $Cdn/STB)
  
  ($/MMBTU)
  
  ($/BBL)
  
  ($/BBL)
  
  ($/BBL)Current Year Forecast2003
  
  25.50
  
  38.50
  
  5.65
  
  24.75
  
  27.25
  
  39.50
  
  25
  
  500Future Forecast2004
  
  21.75
  
  32.00
  
  5.00
  
  19.75
  
  21.50
  
  33.00
  
  25
  
  5002005
  
  20.50
  
  29.50
  
  4.70
  
  19.50
  
  20.50
  
  31.00
  
  25
  
  5002006
  
  20.00
  
  29.25
  
  4.85
  
  19.50
  
  20.50
  
  31.00
  
  25
  
  5002007
  
  20.00
  
  28.75
  
  4.85
  
  19.50
  
  20.50
  
  31.00
  
  25
  
  500 
 (1)  West Texas Intermediate quality (D2/S2)
crude landed in Cushing, Oklahoma.  (2)  Equivalent price for Light Sweet Crude
(D2/S2) landed in Edmonton, Alberta after exchange of .650 $US/$Cdn escalating
at 1.5% per year.  (3)  Price paid at field delivery point.  (5)  ARTC rate ranges from 75% maximum to 25%
minimum. Crown royalty shelter - $2,000,000.    14 
   ESTIMATED NET ASSET
VALUE (Using December 31,
2002 values and Pro-Forma Drumheller acquisition values)  2002
  
  2001(Pro-Forma(Thousands, except per share)
  
  Drumheller)Present Value Reserves (1)Proven Reserves discounted at 10%
  
  68,786
  
  35,321Risked (50%) Probable ReservesDiscounted at 10%
  
  20,227
  
  16,20389,013
  
  51,524Undeveloped LandWestern Canada (2)
  
  11,962
  
  3,595Nova Scotia Offshore (3)
  
  91,000
  
  85,000Seismic Data (4)
  
  6,900
  
  4,600Working Capital (Net Debt) (5)
  
  (29,834
  )
  1,311East Coast Work Commitment Deposits
  
  12,032
  
  21,115Option Proceeds
  
  6,540
  
  3,697187,613
  
  170,842Diluted Common Shares
  
  93,272
  
  53,325Net Asset Value per Share
  
  $2.01
  
  $3.20 
 1.
Reserve values based upon Gilbert Laustsen Jung Associates Ltd Drumheller
acquisition evaluation as at October 1, 2002 combined with the Corporations
pre-existing properties as evaluated by Chapman Petroleum Engineering Ltd  as at January 1, 2003.  2.
Western Canada land values represent the Corporations pre-existing properties,
as  evaluated by Chapman Petroleum
Engineering Ltd, of $7.8 million, combined with internally estimated Drumheller
acquisition net undeveloped land value of $4.2 million.  3.
Nova Scotia land value based upon McDaniel & Associates Consultants Ltd
evaluation as at January 1, 2003.  4.
Includes two large seismic data sets (Offshore Nova Scotia and Western Canada)
and two 2-D seismic sets shot  by the
Corporation on the Nova Scotia offshore area, estimated internally by
Corporation.  5.
Net debt represents December 31, 2002 net debt of $5.5 million combined with a
pro-forma increase in debt of $24.4 million upon closing of the Drumheller
acquisition.   15 
   UNDEVELOPED LANDS  During 2002 the Corporation continued
its aggressive Western Canada land acquisition program adding approximately
47,000 gross acres to its holdings  an increase of 91.7%. A major portion of
the 2002 increase was located in the East Ladyfern area. Subsequent to the
drilling of the Marquis well the Corporations net acreage Offshore Nova
Scotia was reduced to reflect the earnings of the partner to depth drilled. The
Corporation continues to hold a 100% interest in the deeper rights on the
Marquis block.  In
January 2003 the Corporation announced a major acquisition in the Drumheller
area of Alberta. The acquisition, which was effective October 1, 2002, includes
74,326 acres of undeveloped lands which are not included in the above comments.  The table below sets out the
Corporations undeveloped land holdings as at December 31, 2002:  AverageUndeveloped
  
  Gross
  
  Net
  
  WorkingLands
  
  Acres (1)
  
  Acres(2)
  
  InterestAlberta (excluding Drumheller)
  
  82,304
  
  72,250
  
  87.8
  %British Columbia
  
  11,909
  
  9,236
  
  77.6
  %Saskatchewan
  
  4,032
  
  4,032
  
  100.0
  %Nova Scotia
  
  933,800
  
  877,768
  
  94.0
  %1,032,045
  
  963,286
  
  93.3
  %Drumheller, Alberta
  
  74,326
  
  59,223
  
  79.7
  %Total
  
  1,106,371
  
  1,022,509
  
  92.4
  % 
 (1)   Gross
refers to the total acres in which the Corporation has or may earn an interest.  (2)   Net refers to the total acres in which the
Corporation has or may earn an interest, multiplied by the percentage  working interest owned or to be owned by the
Corporation.  The
Nova Scotia offshore acreage has been appraised a $91 million fair market
value. The appraised value of the undeveloped acreage in Western Canada
(excluding the Drumheller acquisition) is approximately $7.8 million.  JOINT VENTURES POLICY  Canadian Superior has a policy of
acquiring and operating 100% of its properties, wherever possible.  Certain capital cost and risk profiles do,
however, warrant risk management through the formation of joint ventures.  The Corporation intends to continue to enter
into joint venture agreements with various operators to minimize high risk
capital exposure and to maximize leverage on its high working interest lands.   16 
   ENVIRONMENTAL
RESPONSIBILITY  Canadian Superior conducts its
operations in Canada in a manner consistent with environmental regulations as
stipulated in provincial and federal legislation.  The Corporation is committed to meeting its responsibilities to
protect the environment wherever it operates and anticipates making
expenditures of both a capital and expense nature to ensure full compliance
with laws relating to protection of the environment.  The Corporation anticipates spending sufficient funds on
environmental expenditures in 2003 in order to comply in all material respects
with all environmental requirements related to its field operations. The
Corporation does not anticipate that such expenditures, as a percentage of cash
flow, will be greater than those expected, on average, by other industry
operators.  The Corporation will
maintain insurance coverage where available, and financially desirable, in
light of risk versus cost factors.  HUMAN RESOURCES  Canadian Superior continued to add to
its Western Canadian exploration and operational staff during 2002. The
Corporation currently has a total of 43 full-time staff, including six staff
members in each of the Halifax and the Drumheller offices.  Expert consultants are retained on an as
required basis.      17 
   MANAGEMENT DISCUSSION AND ANALYSIS  Managements Discussion and Analysis
should be read in conjunction with the Financial Statements and Auditors
Report included in this Annual Report. 
The Financial Statements have been prepared in accordance with
accounting principles generally accepted in Canada.  The following discussion and analysis refers primarily to 2002
compared with 2001, unless otherwise indicated.  The calculation of barrels of oil equivalent (boe) is based on
a conversion rate of six thousand cubic feet of natural gas to one barrel of
crude oil.  Managements
Discussion and Analysis contains the term cash flow from operations, which
should not be considered an alternative to, or more meaningful than cash flow
from operating activities as determined in accordance with generally accepted
accounting principles (GAAP) as an indicator of the Companys financial
performance.  Canadian Superiors
determination of cash flow from operations may not be comparable to that
reported by other corporations.  Production, Pricing
and Revenue  Natural gas production, which
contributed 90 percent of 2002 revenues, increased 88 percent to average 4.7
mmcf/d in 2002, up from an average of 2.5 mmcf/d a year earlier.  As a result, oil and gas revenues increased
57 percent to $7.7 million in 2002, up from $4.9 million in 2001.  The Corporation averaged $4.04 per mcf for
its 2002 natural gas sales, down 23 percent from $5.23 per mcf realized in 2001
as a result of lower 2002 market prices. 
Canadian Superior sold all of its production into the spot market in
2002 and 2001.  Oil
and natural gas liquids production tripled to average 59 bbl/d in 2002, up from
an average of 19 bbl/d in 2001. Liquids prices realized were slightly lower in
2002, averaging $35.69 compared to $36.03 in 2001.  Royalties  The 2002 royalty expense increased to
$1.7 million from $0.9 million in 2001, reflecting the Corporations 88 percent
increase in natural gas production. 
Royalties averaged 22 percent of revenues in 2002, up from 18 percent in
2001, as a result of the Waterton property disposition in May 2001.  A portion of the 2001 Waterton production
qualified for royalty holidays, but the new 2002 production does not qualify
for royalty holidays.  Operating Expenses  Production and operating expenses were
$2.5 million in 2002, up from $1.1 million in 2001, largely resulting from the
significant increase in the Corporations production year over year.  2002 operating expenses were $8.22 per boe,
up $1.57 per boe from a year prior. 
Approximately 25 percent of the 2002 operating expenses related to
leased production equipment, much of which is currently being examined with the
intent of exercising purchase options thereby lowering future operating costs.  General and
Administrative Expenses  General and administrative expenses
increased to $2.9 million in 2002, up from $2.3 million the prior year.  The increase can be attributed to the
increased staffing and associated expenses in the Calgary and Halifax offices
to support the Corporations increased operations activities.  Depletion and
Amortization  Depletion and amortization expenses of
$5.6 million in 2002, were up $4.6 million from the prior year.  The increase results from the nearly doubled
2002 production, as compared to 2001, and a decrease in the Corporations
reserve base as at January 1, 2003 which was reflected in higher fourth quarter
depletion charges.   18 
   Future Site
Restoration  The Corporation accrues a provision for
future site restoration based on its existing number of wells and production
facilities.  The provision was $295,000
in 2002 and $63,000 in 2001. The rise reflects both higher 2002 production and
the increased well count.  Interest Expense  During 2002 the Corporation
periodically utilized its revolving production loan facility, which at year end
had a drawn balance of $5.15 million. $158,000 of interest expenses were
incurred in 2002 compared to nil in 2001.  Other Income  Other income in 2002 of $454,000
consists solely of interest income earned on the Corporations $12.0 million of
term deposits.  The 2001 other income
amount of $13.5 million is principally related to a $13.2 million gain recorded
on the disposition of the Corporations interest in the Waterton area.  Taxes  The Corporation recorded current taxes
only in respect of the federal Large Corporations Tax.  This tax is based on the Corporations
year-end book value, and as a result of the asset write-down was reduced to
$64,000 in 2002.  A reduction in future
income taxes of $19.9 million was recorded, $18.3 million of which relates to
the asset write-down. The Corporation does not expect to be cash taxable in
2003.  Capital Expenditures  Gross capital expenditures in 2002
totaled $55.0 million, nearly double the 2001 amount.  Approximately $35.5 million was spent on drilling and
completions, $11.1 million on tie-ins and pipelines and $5.2 million on land
and seismic purchases. $3.2 million of overhead related to the Corporations
exploration program was capitalized.  A
significant portion of the 2002 capital program related to the drilling of the
Marquis L-35/L-35A well, in which the Corporation recorded $15.3 million
gross drilling expenditures including costs related to its drilling insurance
premiums.  These costs were largely
offset by a $10.0 million prospect commitment fee Canadian Superior received
from El Paso in the third quarter of 2002. 
In the event that any natural gas or other hydrocarbons in commercial
quantities are produced from a well on the Marquis Project, the Corporation
will be obligated to repay the amount in 12 quarterly installments following
commencement of commercial production. 
This commitment fee allowed the Corporation to retain a 50 percent
working interest in the Marquis Project, including the drilling of the
approximately $45.0 million Marquis well for a net cash outlay of only $5.3
million.  Cash Flow  Cash flow from operations totalled $0.8
million in 2002, compared with $1.7 million the previous year. The decrease is
principally due to lower commodity prices, decreased 2002 interest income and a
foreign currency gain realized in 2001.  Ceiling Test  The Corporation completed a ceiling
test on the net carrying cost of its oil and gas assets at December 31, 2002,
as compared to the undiscounted sum of the Corporations constant dollar future
net cash flows. Based on year-end commodity prices of $6.00 per mcf for natural
gas and $43.25 per bbl for oil and NGLs the Corporation recorded a $43.0
million pre-tax ($24.7 million after tax) write-down of the carrying cost of
its oil and gas assets.   19 
   Principal factors requiring the ceiling
test write-down include negative revisions to the Corporations year-end proven
reserve base and the inclusion of the Marquis L-35/L-35A well costs, which
was abandoned, and certain other related Offshore Nova Scotia preliminary costs
totalling gross $22.6 million ($12.6 million net of prospect commitment fee
received).  In addition, our 2002 asset
base was heavily weighted to winter access activity areas.  A number of activities scheduled for the
Corporations 2002 drilling and workover programs were scheduled for winter
access areas in Alberta, and were delayed significantly due to late freeze-up
conditions.  This hampered our ability
to increase production to expected year-end levels and as a result, the
Corporation elected to take a conservative stance on its proven reserve
assessments in the predominantly winter access areas of Bison Lake, Venus,
Boundary Lake, Windfall and Umbach. In the fall of 2003, after freeze-up,
Canadian Superior intends to go back to many of these winter access areas for
remedial work and expects to recapture some of the proven reserves.  The magnitude of the write-down was
exacerbated by the reported pre-tax gain, of $13.2 million, on the sale of
Waterton in 2001.  Had the Corporation
been carrying more oil and gas asset costs at that time, the gain would have been
recorded as a reduction in assets in 2001, thus reducing the magnitude of the
2002 asset write-down by the corresponding $13.2 million amount.  It
should be noted that the Corporations East Ladyfern project, in which two
wells were successfully drilled in the spring of 2003, is not included in the
year-end reserve evaluation.  The
Drumheller reserves, which are accessible on a year-round basis, were evaluated
by Gilbert Laustsen Jung Associates Ltd and currently account for approximately
72 percent of the Corporations total proved reserves. These reserves were not
included in the year-end results.  Earnings (Loss)  The Corporation posted a net loss of
$28.2 million in 2002, compared to earnings of $8.1 million in 2001.  The current year loss results primarily from
the above mentioned ceiling test and increased fourth quarter depletion
charges, whereas 2001 earnings incorporated a $13.2 million pre-tax gain on the
sale of the Waterton property.  Subsequent Events  On January 13, 2003 the Corporation announced
that it had entered into an agreement with El Paso Corporation to acquire El
Pasos Drumheller area oil and gas assets effective October 1, 2002.  The transaction closed on March 20, 2003 for
a price of $53.5 million net of purchase price adjustments related primarily to
post October 1, 2002 production.  This
acquisition added proved reserves of approximately 4.2 million boe, established
reserves of approximately 5.5 million boe, and production of approximately
2,600 boe per day.  Liquidity and Capital
Resources  At December 31, 2002 the Corporation
had a $14.0 million demand revolving production loan facility with a Canadian
chartered bank, of which it had drawn $5.15 million.  The Corporations net debt at year end was $5.5 million.  On March 20, 2003, in conjunction with the
Drumheller asset acquisition, the facility was increased to $28.0 million.  The facility is reviewed annually, with the
next review scheduled for June 30, 2003. 
Given current commodity price levels, managements objective is to
maintain debt within approximately 1.5 times, or less, annualized monthly cash
flow for 2003.  The
Corporation has $12.0 million in interest bearing term deposits at December 31,
2002, which are posted as security against work expenditure bids, of approximately
$48.0 million, relating to its Offshore Nova Scotia exploration licenses. At
December 31, 2001, the corresponding figure was $21.1 million.  The deposits are released to the Corporation
on a basis proportionate to 25 percent of expenditures incurred.  During 2002, $9.1 million of the deposits
were released to Canadian Superior as a result of the drilling of the Marquis
Project well and a joint venture agreement pertaining to three of the offshore
licenses. It is the Corporations intention to secure a joint venture partner
for its deepwater Mayflower block which, if successful, will release up to
$10.3 million in secured term deposits assigned to this block.   20 
   During 2002, the Corporation funded its
$55.0 million (gross) capital expenditure program through the issuance of $28.5
million in equity (52 percent), redemption of $9.1 million in term deposits (17
percent), revolving production loan advances of $5.15 million (9 percent), $2.3
million dollars of working capital (4 percent), and the receipt of a $10.0
million prospect commitment fee (18 percent).  The
Corporations 2003 exploration and development expenditures are expected to be
primarily funded from operating cash flow. 
If additional cash is required to fund the planned 2003 capital program,
it may come from equity financing or potential releases of the secured term
deposits as additional work expenditures or joint venture arrangements are
performed. The Corporation may also elect to farm-out other portions of its
offshore Nova Scotia acreage, or enter into other arrangements with third
parties, thereby reducing capital required from the Corporation to fund these
prospects.  In
the first quarter of 2003, the Corporation raised $35.0 million (gross) in
equity and increased its revolving production loan facility to $28.0 million,
both of which were ultimately used to fund the Drumheller acquisition of
approximately $53.5 million (net of purchase price adjustments).  As
at April 30, 2003, the Corporation had 87,627,006 common shares outstanding and
5,815,668 outstanding options to purchase common shares.  Business Risks  Companies engaged in the oil and gas
industry are exposed to a number of business risks, which can be described as
operational and financial risks, many of which are outside of Canadian
Superiors control. More specifically these include risks of economically
finding reserves and producing oil and gas in commercial quantities, marketing
the production, commodity prices and interest rate fluctuations and
environmental and safety risks.  In
order to mitigate these risks, the Corporation has an experienced base of
qualified personnel, both technical and financial and maintains an insurance
program that is consistent with industry standards.  At
December 31, 2002 the Corporation had $12.0 million of term deposits posted as
security against its Offshore Nova Scotia work expenditure bids. To the extent
that expenditures are not incurred within the period allowed, the Corporation
would forfeit its proportionate share of any remaining deposit relating to the
unexpended work commitment.       21 
   MANAGEMENTS REPORT TO SHAREHOLDERS  Management is responsible for the
preparation of the financial statements and the consistent preparation of all
other financial information in this annual report. The financial statements
have been prepared in accordance with generally accepted accounting principles,
and the other financial information appearing throughout the annual report is
presented on a basis consistent with the financial statements.  Management
maintains a system of internal controls to provide reasonable assurance that
assets are safeguarded and that relevant and reliable information is produced
in a timely manner.  External
auditors, appointed by the shareholders, have examined the financial
statements. Their report follows. The Audit Committee of the Board of Directors
has reviewed the financial statements with management and the external
auditors. The Board of Directors has approved the financial statements on the
recommendations of the Audit Committee.   Greg S. Noval
  Robert PillingPresident
  Vice President
   AUDITORS REPORT TO SHAREHOLDERS  We have audited the balance sheets of
Canadian Superior Energy Inc. as at December 31, 2002 and 2001 and the
statements of earnings and retained earnings (deficit) and cash flows for the
years then ended.  These financial
statements are the responsibility of the corporations management.  Our responsibility is to express an opinion
on these financial statements based on our audit.  We
conducted our audit in accordance with Canadian generally accepted auditing
standards.  Those standards require that
we plan and perform an audit to obtain reasonable assurance whether the
financial statements are free of material misstatement.  An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.  In
our opinion, these financial statements present fairly, in all material respects,
the financial position of the corporation as at December 31, 2002 and 2001 and
the results of its operations and its cash flows for the years then ended in
accordance with Canadian generally accepted accounting principles.  CALGARY, AlbertaApril 30, 2003
  CHARTERED ACCOUNTANTS    22 
   BALANCE SHEET DECEMBER 31  (Thousands of dollars) Assets
  
  2002
  
  2001Current assetsCash and short-term investments
  
  $
  
  
  $
  8,190Accounts receivable
  
  4,254
  
  3,532Prepaid expenses
  
  1,724
  
  2325,978
  
  11,954Term deposits (Note 3)
  
  12,032
  
  21,115Oil and gas assets (Note 4)
  
  31,946
  
  35,519$
  49,956
  
  $
  68,588LiabilitiesCurrent liabilitiesAccounts payable and accrued
  liabilities
  
  $
  6,312
  
  $
  10,751Revolving production loan (Note 5)
  
  5,150
  
  11,462
  
  10,751Provision for future site
  restoration
  
  411
  
  116Future income taxes (Note 8)
  
  5,213
  
  14,82417,086
  
  25,691Shareholders
  EquityShare capital (Note 6)
  
  49,927
  
  31,781Retained earnings (deficit)
  
  (17,057
  )
  11,11632,870
  
  42,897Contingencies and commitments (Note
  11)Subsequent Events (Note 12)$
  49,956
  
  $
  68,588   See accompanying
notes to financial statements  Approved by the Board Greg S. Noval
  Robert PillingDirector
  Director
     23 
   STATEMENT OF EARNINGS AND RETAINED EARNINGS
(DEFICIT) YEARS ENDED DECEMBER 31   (Thousands of dollars except per share amounts)
  
  2002
  
  2001RevenueOil and gas
  
  $
  7,741
  
  $
  4,945Royalties, net of royalty credit
  
  (1,734
  )
  (867
  )6,007
  
  4,078ExpensesGeneral and administrative
  
  2,898
  
  2,291Production and operating
  
  2,542
  
  1,054Interest
  
  158
  
  Depletion and amortization
  
  5,599
  
  992Future site restoration
  
  295
  
  63Write down of oil and gas assets
  (Note 4)
  
  43,000
  
  54,492
  
  4,400Loss from operations
  
  (48,485
  )
  (322
  )Other income (Note 10)
  
  454
  
  13,499Earnings (loss) before income taxes
  
  (48,031
  )
  13,177Income taxesCurrent
  
  64
  
  140Future (reduction) (Note 8)
  
  (19,922
  )
  4,928(19,858
  )
  5,068Net earnings (loss)
  
  (28,173
  )
  8,109Retained earnings, beginning of year
  
  11,116
  
  3,007Retained earnings (deficit), end of
  year
  
  $
  (17,057
  )
  $
  11,116Earnings (loss) per share
  
  $
  (0.51
  )
  $
  0.20Diluted earnings (loss) per share
  
  $
  (0.51
  )
  $
  0.19  See accompanying
notes to financial statements   24 
   STATEMENT OF CASH FLOWS YEARS ENDED DECEMBER 31  (Thousands of dollars except per share amounts)
  
  2002
  
  2001Cash provided by (used in) :OperationsNet earnings (loss)
  
  $
  (28,173
  )
  $
  8,109Items not involving cash for
  operationsDepletion and amortization
  
  5,599
  
  992Future site restoration
  
  295
  
  63Write down of oil and gas assets
  
  43,000
  
  Future income taxes (reduction)
  
  (19,922
  )
  4,928Gain on sale of oil and gas
  properties
  
  
  
  (13,210
  )Interest on unexpended exploration
  costs
  
  
  
  461Write-down of investments
  
  
  
  230Write-down of merger proposal costs
  
  
  
  156Cash flow from operations
  
  799
  
  1,729Net change in non-cash working
  capital
  
  (6,654
  )
  4,309(5,855
  )
  6,038FinancingIssue of shares
  
  28,457
  
  19,991Redemption (purchase) of term
  deposit
  
  9,083
  
  (14,190
  )Revolving production loan advances
  
  5,150
  
  42,690
  
  5,801InvestingPurchase of capital assets
  
  (55,025
  )
  (27,660
  )Prospect commitment fee (Note 11d)
  
  10,000
  
  Sale of oil and gas properties
  
  
  
  18,728Prospect review recoveries
  
  
  
  1,250Merger proposal
  
  
  
  (156
  )Interest on unexpended exploration
  costs
  
  
  
  (461
  )(45,025
  )
  (8,299
  )Increase (decrease) in cash and
  short term investments
  
  (8,190
  )
  3,540Cash and short-term investments, at
  beginning of year
  
  8,190
  
  4,650Cash and short-term investments, end
  of year
  
  $
  
  
  $
  8,190Cash flow from operations per share
  
  $
  0.01
  
  $
  0.04Diluted cash flow from operations
  per share
  
  $
  0.01
  
  $
  0.04   See accompanying
notes to financial statements    25 
   NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER
31, 2002 AND 2001 (Tabular amounts in thousands except
per share amounts)  Note 1 - Accounting
Policies a)    Depletion and Amortization - Canadian
Superior Energy Inc. is engaged in the acquisition, exploration, development
and production of oil and natural gas in Canada.  The Corporation follows the full-cost method of accounting for
oil and gas operations whereby all costs relating to the  acquisition of, exploration for, and
development of oil and gas reserves are capitalized. Such costs include land
acquisition costs, geological and geophysical expenses, carrying charges on
non-producing properties, costs of drilling both productive and non-productive
wells, costs of production equipment and overhead charges related to
acquisition, exploration and development activities.  The costs are amortized using
the unit-of-production method based upon the estimated proved oil and gas
reserves as determined by the Corporations petroleum engineers. Oil and
natural gas reserves and production are converted into equivalent units based
upon relative energy content.  Costs of acquiring and
evaluating unproved properties are initially excluded from depletion
calculations. These unevaluated properties are assessed periodically to
ascertain whether impairment  has
occurred.  When proved reserves are
assigned or the property is considered to be impaired, the cost of the property
or the amount of the impairment is added to costs subject to depletion calculations.  The Corporation applies a
quarterly ceiling test to capitalized oil and gas property costs to ensure that
such costs do no exceed the estimated future net revenues from production of
proven reserves, at prices and operating costs in effect at the year end, plus
the cost of unevaluated properties less managements estimate of
impairment.  The test also provides for
estimated future administrative overhead, financing costs, future site
restoration costs and income taxes.  Proceeds received from disposals
of properties and equipment are credited against capitalized costs unless the
disposal would alter the rate of depletion and depreciation by more than 20
percent, in which case a gain or loss on disposal is recorded.  Amortization of other equipment
is provided on a diminishing balance basis at rates ranging from 20% to 100%
per annum.  Gains and losses from disposals
are included in income.  b)   Future
Site Restoration Costs - Estimated future site restoration costs are provided
based on the estimated production life of the properties. Actual expenditures
will be charged to the accumulated provision when incurred.  c)    Joint Ventures - The Corporations
exploration and development activities related to oil and gas are conducted
jointly with others. The accounts reflect only the Corporations proportionate
interest in such activities.  d)    Income Taxes - The Corporation follows the
liability method of accounting for income taxes.  Temporary differences arising from the differences between the tax
basis of an asset or liability and its carrying amount on the balance sheets
are used to calculate future income tax assets or liabilities.  Future income tax assets or liabilities are
calculated using tax rates anticipated to apply in the periods that the
temporary differences are expected to reverse.  e)    Measurement Uncertainty - The preparation of
financial statements in conformity with Canadian generally accepted accounting
principles requires the Corporations management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.  Actual results could differ materially from
those estimates.  f)      Per
Share Amounts - The Corporation follows the treasury stock method for the
computation of diluted per share amounts. 
This method assumes the proceeds from the exercise of dilutive options
are used to purchase common shares at the average market price during the
period.  Note 2 - Change in
Accounting Policies  Effective January 1, 2002, the
Corporation adopted the new recommendations of the Canadian Institute of
Chartered Accountants with respect to stock-based compensation.  The Corporation elected to continue to use
the intrinsic value method to account for its stock-based compensation plan and
to disclose the pro-forma results of using the fair value method (see Note 6d).  The
cash at December 31, 2002 and December 31, 2001 consists of unassigned cash and
short term investments.  The cash figure
in 2001 has been restated to conform to the above definition.  Note 3 - Term Deposits  Under the terms of the licenses
referred to in Note 11a, the Corporation has assigned term certificates
totaling $12,032,000 (2001 - $21,115,000). 
Accordingly, this amount has been classified as a non-current asset.   26 
   Note 4 - Oil and Gas
Assets  2002
  
  2001AccumulatedDepletion andCost
  
  Amortization
  
  Net
  
  NetOil and gas assets
  
  $
  40,910
  
  9,127
  
  31,783
  
  35,365Other equipment
  
  492
  
  329
  
  163
  
  154$
  41,402
  
  9,456
  
  31,946
  
  35,519  Future development costs related to proven
undeveloped reserves of $1,288,000 (2001-$3,896,000) have been included in the
depletion base calculation at December 31, 2002.  At
December 31, 2002, the Corporation has excluded $9,200,000
(2001-$9,846,000)  of oil and gas
properties relating to unproved properties from costs subject to
depletion.  General and administrative
expenses totaling $3,180,000 (2001-$2,113,000), of which $770,000
(2001-$1,141,000) pertained to the Nova Scotia project, that were directly
related to exploration and development activities have been capitalized for the
year ended December 31, 2002 .  At
December 31, 2002, the Corporation applied a ceiling test to its oil and gas
assets using December 31, 2002 prices of:  Gas (per thousand cubic feet)
  
  $
  6.00Oil and natural gas liquids (per
  barrel)
  
  $
  43.25  The
application of the test resulted in a $43.0 million pre-tax reduction ($24.7
million after tax) in the carrying value of the Corporations oil and gas
assets.  At
December 31, 2002 the estimated future site restoration costs to be accrued
over the remaining life of proven reserves were $1,589,000 (2001-$1,246,000).  Note 5 - Revolving
Production Loan  At December 31, 2002 the Corporation
had a demand revolving production loan facility (the facility) with a Canadian
chartered bank of $14,000,000 of which it had drawn $5,150,000.  On
March 20, 2003, in conjunction with the Drumheller acquisition, as outlined in
Note 12a, the facility was increased to $28,000,000.  The facility bears interest at prime plus 0.75% on the first
$22.5 million of the facility and prime plus 1.0% on the excess.  The
facility is secured by a $50 million first floating charge demand debenture on
the assets of the Corporation and a general security agreement covering  all of the assets of the Corporation. The
facility is reviewed on an annual basis, with the next such review scheduled
for June 30, 2003.  Note 6 - Share Capital  a)     Authorized:  Unlimited
number of common shares Unlimited
number of preferred shares  b)    Voting
common shares issued:  Number
  
  AmountBalance, as at January 1, 2001
  
  35,833
  
  $
  17,343Issued for cash on flow through
  share issuesnet of income tax benefits renounced
  
  2,430
  
  1,349Issued for cash
  
  1,600
  
  2,000Issued upon exercise of stock
  options
  
  450
  
  255Balance, as at December 31, 2001
  
  40,313
  
  20,947Issued upon conversion of special
  warrants
  
  10,107
  
  10,834Issued upon exercise of stock
  options
  
  517
  
  493Issued for cash
  
  1,353
  
  3,790Issued for cash on flow-through
  shares
  
  12,812
  
  26,105Tax benefits renounced on
  flow-through shares
  
  
  
  (11,095
  )Issue costs, net of future tax
  reduction of $783
  
  
  
  (1,060
  )Repurchased under Normal Course
  Issuer Bid
  
  (70
  )
  (87
  )Balance, as at December 31, 2002
  
  65,032
  
  $
  49,927  27 
   c)     Special
warrants issued:  Number
  
  AmountBalance, January 1, 2001
  
  
  
  $
  Issued for cash:Flow-through warrants net ofincome tax benefits renounced
  
  6,917
  
  6,761Common warrants
  
  3,190
  
  4,785Issue costs net of income tax
  benefits
  
  
  
  (712
  )Balance, December 31, 2001
  
  10,107
  
  10,834Converted upon issuance of common
  shares
  
  (10,107
  )
  (10,834
  )Balance, as at December 31, 2002
  
  
  
  $
    d) Stock options:  The
Corporation has a stock option plan for its directors, officers, employees and
key consultants. The exercise price for stock options granted is no less than
the quoted market price on the grant date. 
An options maximum term is ten years.  2002
  
  2001Weighted
  
  
  
  WeightedNumber
  
  Average
  
  Number
  
  Averageof Options
  
  Price
  
  of Options
  
  PriceBalance, beginning of year
  
  4,020
  
  $
  0.92
  
  2,175
  
  $
  0.75Forfeited
  
  (356
  )
  1.14
  
  (80
  )
  0.81Exercised
  
  (517
  )
  0.95
  
  (450
  )
  0.57Granted
  
  2,694
  
  1.39
  
  2,375
  
  1.00Balance, end of year
  
  5,841
  
  $
  1.12
  
  4,020
  
  $
  0.92  The following table summarizes
information about the stock options outstanding at December 31, 2002:  Options Outstanding
  
  Options ExercisableWeightedAverage of
  
  Weighted
  
  
  
  WeightedRemaining
  
  Average
  
  
  
  AverageNumber
  
  Contractual
  
  Exercise
  
  Number
  
  ExerciseExercise Price
  
  of Options
  
  Life years)
  
  Price
  
  of Options
  
  Price$0.80 - 0.82
  
  2,662
  
  5.0
  
  0.81
  
  2,386
  
  0.811.10 - 1.30
  
  1,594
  
  9.5
  
  1.14
  
  517
  
  1.191.50 - 1.60
  
  1,490
  
  9.1
  
  1.54
  
  400
  
  1.592.70 - 3.00
  
  95
  
  9.4
  
  2.89
  
  
  
  $0.80 - 3.00
  
  5,841
  
  7.4
  
  1.12
  
  3,303
  
  0.96   28 
   The Corporation uses the intrinsic
value method to account for its stock-based compensation plan.  Under this method, no compensation costs are
recorded in the financial statements for stock options granted to employees and
directors.  If the fair value method had
been used, the Corporations stock - based compensation costs, pro forma net
loss and pro forma net loss per share for the year ended December 31, 2002
would be as follows:  Compensation Costs
  
  $
  365Net lossAs reported
  
  (28,173
  )Pro forma
  
  (28,538
  )Net loss per common shareBasicAs reported
  
  (0.51
  )Pro forma
  
  (0.52
  )DilutedAs reported
  
  (0.51
  )Pro forma
  
  (0.52
  )  The
Black-Scholes option pricing model, with the following weighted average
assumptions for the year ended December 31, 2002, were used to estimate the
fair value of options on the date of the grant:  Risk free interest rate (%)
  
  3.7Expected lives (years)
  
  10.0Expected volatility (%)
  
  49Dividend per share
  
  0.0  e)    During 2002, pursuant to a normal course
issuer bid, the Corporation repurchased for cancellation 69,700 common shares
at a purchase price of $87,000.  f)     During the year ended December 31, 2001,
the Corporation entered into flow-through share agreements to issue 6,917,000
common shares for cash consideration of $11,759,000 and to renounce $11,759,000
of qualified expenditures.  g)    During the year ended December 31, 2002, the
Corporation entered into flow-through share agreements to issue 12,812,000
common shares for cash consideration of $26,105,000 and to renounce $26,105,000
of qualified expenditures.  h)    Per share amounts - Earnings and cash flow
from operations per share amounts were calculated using the weighted average
number of common shares outstanding of 54,730,000 for 2002 and 40,887,000 for
2001.  Diluted earnings and cash flow
from operations per share were calculated using 57,358,000 and 43,217,000
shares for the years ended December 31, 2002 and 2001, respectively.  Note 7 - Related Party
Transactions  a)    Service arrangements: During the year ended
December 31, 2002, the Corporation paid $1,209,000 (2001 -$380,000) at normal
commercial terms for oilfield equipment rentals to a company controlled by a
director and for aircraft rentals to a company controlled by an officer and
director of the Corporation. At December 31, 2002, accounts receivable includes
amounts totaling $1,035,000 (2001 - $467,000) for advances to one of the
related companies. In January 2003 the advance was reduced to zero.  b)    Share purchase loans: At December 31, 2002
accounts receivable includes $137,500 (2001 - $175,000) for shares purchased by
employees. Subsequent to December 31, 2002 these amounts were repaid.   29 
   Note 8 - Income Taxes  The net future income tax liability is
comprised of:  2002
  
  2001Future Tax LiabilitiesCapital assets in excess of tax
  values
  
  $
  6,428
  
  $
  15,440Future Tax AssetsShare issue costs
  
  (1,040
  )
  (567
  )Future removal and site restoration
  
  (175
  )
  (49
  )(1,215
  )
  (616
  )Net future income tax liability
  
  $
  5,213
  
  $
  14,824  The
following table reconciles income taxes calculated at the Canadian statutory
rate of 42.5% with actual income taxes:  2002
  
  2001Earnings (loss) before income taxes
  
  $
  (48,031
  )
  $
  13,177Combined federal and provincial
  income tax rate
  
  42.5
  %
  42.5
  %Computed income tax provision
  (reduction)
  
  (20,413
  )
  5,600Increase (decrease) resulting from:Non-deductible Crown royalties
  
  817
  
  349Other
  
  
  
  5Resource allowance
  
  (205
  )
  52Alberta Royalty Tax Credit
  
  (121
  )
  (75
  )Tax effect of statutory rate change
  
  
  
  (312
  )Non-taxable portion of capital gains
  
  
  
  (691
  )$
  (19,922)
  
  $
  4,928  Note 9 - Risk
Management  The
carrying values of financial assets and liabilities approximate their fair
value due to their demand nature or relatively short periods to maturity.  A
substantial portion of the Corporations accounts receivable are with customers
and joint venture partners in the oil and gas industry and are subject to
normal industry credit risks. 
Purchasers of the Corporations oil, gas and natural gas liquids are
subject to an internal credit review to minimize the risk of non-payment.  The
Corporation is exposed to foreign currency fluctuations as oil and gas prices
received are referenced to U.S. dollar denominated prices. The Corporation is
exposed to a floating interest rate on its revolving production loan.  The
Corporation 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. Subsequent to December 31, 2002, and in
conjunction with the Drumheller acquisition as outlined in Note 12a, the
Corporation entered into the following contracts:  Contract
  
  Volume
  
  Price
  
  TermNatural GasFixed Price
  
  3,000 gj/d
  
  $6.46/gj (Aeco)
  
  April 1 - December 31, 2003Put Option
  
  2,000 gj/d
  
  $6.50/gj (Aeco)
  
  April 1 - December 31, 2003strike cost $0.43/gjCrude OilFixed Price
  
  275 bbl/d
  
  $35.75 CAD/bbl WTI
  
  June 1, 2003 - May 31, 2004   30 
   Note 10 - Other Income  2002
  
  2001Interest
  
  $
  454
  
  $
  752Gain on sale of oil and gas
  properties
  
  
  
  13,210Realized foreign currency gains
  
  
  
  421Write-down of merger proposal costs
  
  
  
  (156
  )Write-down of investment and notes
  receivable
  
  
  
  (267
  )Interest on unexpended exploration
  costs
  
  
  
  (461
  )$
  454
  
  $
  13,499  Note 11 -
Contingencies and Commitments  a)    Nova Scotia: During 2000 and 2001, the
Corporation acquired four exploration licenses from the Canada - Nova Scotia
Offshore Petroleum Board.  These
licenses are for a period of nine years in total, subject to certain
requirements being met during the first five years.  As a condition of the licenses, the Corporation had originally
posted security in the amount of 25% of its work expenditure bids of
$84,460,000 or $21,115,000 at December 31, 2001.  The deposit is refundable to the extent of approved allowable
expenditures.  As a result of 2002
expenditures and the Corporation entering into a joint venture agreement
pertaining to three of the offshore exploration licenses, the amount of the
deposit had been reduced to $12,032,000 at December 31, 2002.  The
Corporation has issued demand promissory notes for the above mentioned
$12,032,000 (2001 - $21,115,000) to the Receiver General for Canada.  These notes are secured by a Letter of
Guarantee which in turn is secured by term deposits held by the Corporation.  b)    Flow-through Expenditures: At December 31,
2002, the Corporation had yet to incur approximately $7.9 million of Canadian
exploration expenses which were renounced for tax purposes.  These expenses must be incurred by December
31, 2003.  c)    Litigation and Claims:  The Corporation is involved in various
claims and litigation arising in the ordinary course of business.  In the opinion of management, any resulting
liability is not expected to have a material adverse effect on the
Corporations financial position.  d)    Prospect Commitment Fee:  During 2002, the Corporation received a $10
million prospect commitment fee related to its Marquis Prospect Offshore Nova
Scotia.  In the event that any natural
gas or other hydrocarbons in commercial quantities are produced from a well on
the Marquis Prospect, the Corporation will be obligated to repay the amount
in 12 quarterly installments following commencement of commercial production.  e)    Lease Obligations: The Corporation has
entered into agreements to lease premises and equipment requiring future
minimum payments totaling $1,177,000. 
Minimum annual payments during the next four fiscal years are as
follows:  2003
  
  $
  899,0002004
  
  $
  220,0002005
  
  $
  47,0002006
  
  $
  11,000  Note 12 - Subsequent
Events  a)    Drumheller Acquisition:  On January 13, 2003 the Corporation
announced that it had entered into an agreement with El Paso Corporation to
acquire El Pasos Drumheller Area oil and gas assets effective October 1,
2002.  The transaction closed on March
20, 2003 for a price of $53.5 million net of purchase price adjustments.  b)    Equity Issuances:  On February 25, 2003, the Corporation announced it had closed a
bought deal financing for total gross proceeds of $21.4 million comprised of
13.4 million common shares at $1.60 per share, including an over allotment
allocation of 0.9 million shares.  On March 20, 2003, the
Corporation issued 9.0 million common shares for gross proceeds of $13.6
million, relating to a best efforts unit offering announced on March 10,
2003.  Each $1.50 unit consists of one
common share and one-half purchase warrant. 
Each whole warrant entitles the holder to purchase a common share for a
period of twelve months from the closing date at a price of $2.00 per common
share.   31 
      
    CORPORATE INFORMATIONDIRECTORS
  
  OFFICERS AND SENIOR MANAGEMENTGreg Noval, B.Comm., B.A. (Econ.),
  LLB
  
  Greg Noval, B.Comm., B.A. (Econ.),
  LLBPresident & Chief Executive Officer
  
  President & Chief Executive OfficerRobert Pilling, B.Comm., C.G.A.
  
  Robert Pilling, B.Comm., C.G.A.Vice President
  
  Vice PresidentLeigh Bilton
  
  Jason Bednar, B. Comm., C.A.Director
  
  ControllerDale G. Blue, B.A.
  
  Leigh BiltonDirector
  
  Manager, Field OperationsCharles Dallas
  
  Michael E. Coolen, P.Eng.Director
  
  Director, East Coast OperationsT.J. (Jake) Harp, B.Sc. Pet. Eng.,
  P.Geoph.
  
  Gerold Fong, B.Sc., GeophysicsDirector
  
  Exploration ManagerFred Purich
  
  Mark Gillis, P.Eng.Director
  
  Manager, East Coast DrillingJ. Ronald Woods, B.Comm., C.F.A.
  
  Daniel C. MacDonald B.A.in Business Admin. (Finance)Director
  
  Land ManagerPaul Moller, B.Sc.,Geology and PhysicsManager, Special ProjectsINDEPENDENT ENGINEERSGilbert Laustsen Jung Associates LtdCalgary, AlbertaChapman Petroleum Engineering Ltd
  
  SOLICITORSCalgary, Alberta
  
  McCarthy Tetrault LLPMcDaniel & Associates Consultants
  Ltd
  
  Calgary, AlbertaCalgary, Alberta
  
  Burchell Green Hayman ParishHalifax, Nova ScotiaREGISTRAR AND TRANSFER AGENTComputershare Investor Services Inc.
  
  AUDITORSCalgary, Alberta & Toronto, Ontario
  
  Brown Smith Owen LLPRed Deer, AlbertaSTOCK EXCHANGE LISTINGThe Toronto Stock Exchange
  
  BANKAmerican Stock Exchange
  
  Alberta Treasury BranchTrading Symbol: SNG
  
  Calgary, Alberta  
    CANADIAN
SUPERIOR ENERGY INC.  HEAD OFFICE Suite
3300, 400 - 3rd Avenue S.W., Calgary, Alberta Canada
T2P 4H2 Tel:
(403) 294-1411   Fax: (403) 216-2374  EAST COAST OFFICE Purdys
Wharf Tower 1 Suite
704, 1959 Upper Water Street, Halifax, Nova Scotia Canada
B3J 3N2 Tel:
(902) 474-3969   Fax: (902) 474-3958  www.cansup.com