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Suncor Energy Inc.’s leaders said they were prepared to meet with Elliot Investment Management LP, the activist investor that this week took aim at the Canadian oil major, condemning what it called a “slow-moving, overly bureaucratic corporate culture.”

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Elliott, founded by Paul Singer, owns a 3.4-per-cent stake in Suncor. The firm said in a letter on April 28 that it wants five new directors added to the Calgary-based company’s board and a management shakeup, adding that the new leadership group should then consider selling its network of Petro-Canada gasoline stations.

Suncor’s stock price jumped 9.5 per cent on the news, suggesting some investors are betting Elliott’s gambit could be good for a company that by some measures has fallen behind some of its oilsands peers.

“Suncor appreciates the views of its shareholders and will take the time to carefully assess the recommendations and materials provided, with a view to enhancing shareholder and other stakeholder value,” the company said in a statement. “Suncor’s board and management team looks forward to engaging with Elliott in due course to better understand their perspective. We remain confident in the company’s strategy for continued growth and will continue to execute our strategic plan and evaluate opportunities to enhance shareholder value.”

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The oil major declined to say when it would meet with Elliott. Analysts and investors said Friday they expect the salvo from Elliott will result in intense scrutiny of Suncor’s first quarter earnings when they’re released on May 9.

Suncor appreciates the views of its shareholders and will take the time to carefully assess the recommendations and materials provided

Suncor statement

Over the past three years, Suncor’s share price has trailed rival Canadian Natural Resources Ltd. by 137 per cent and its oilsands peers by an average of 91 per cent, according to Elliott. The investment firm presented a package of ideas — including the proposed sale of the Petro-Canada network — that is said would drive Suncor’s share price to $68, an increase of more than 50 per cent from its close of April 27, a day before Elliott made its demands public.

“Suncor now finds itself plagued by repeated operational challenges and safety issues,” Elliott partner John Pike and portfolio manager Mike Tomkins wrote, noting missed production goals, high costs and a number of employee fatalities and safety incidents. “(A)ll find their roots in a slow-moving, overly bureaucratic corporate culture that appears to have lost the dynamism that not long ago made Suncor the most valuable company in Canada.”

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Elliott is pushing the oil producer to appoint five new directors with expertise in Canadian energy to the 11-member board, and to boost capital returns after capital expenditures and dividends to more than 80 per cent of discretionary cash flow from the current 50 per cent target.

The Florida-based investment firm also wants a review of top executives to get the “right management” in place. Suncor promoted Mark Little to chief executive in 2019 after Steve Williams retired.

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“We suspect that the board is also frustrated with Suncor’s recent performance,” Elliott wrote.

“Successfully effecting change in a business the size and with the complexity of Suncor is no easy task,” Elliot said. “It will require capable leadership with the right expertise, an acknowledgement of the need for change and a willingness to see that change through.

Ninepoint Partners portfolio manager Eric Nuttall said Elliott will be looking for a signal that Suncor is willing to make some changes.

“Because status quo hasn’t been working so far,” Nuttall said. “What I think they’re really after is a change in the CEO role.

“I would be a little concerned if I was Mark Little right now.”

Suncor will also be feeling increasing pressure to return more cash to shareholders, Nuttall said, especially with rival Cenovus announcing that it will aim to return 100 per cent of excess free funds flow to investors through variable dividends or share buybacks once its net-debt reaches $4 billion.

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Investors say they’ve been patient with the company through a turbulent 24-month period that saw oil prices bottom out in the spring of 2020, briefly falling into negative territory, before surging again to their present heights above US$100 per barrel for West Texas Intermediate. But the decision by Suncor to cut its dividend in 2020 — which has since been reversed — angered many investors and compounded concerns over operational problems at the company’s oilsands mines.

“They’ve had eight quarters since COVID hit and they have not been able to come up with a constructive quarter that they were able to fulfill their obligations in, and that’s part of what’s falling apart on them,” said Rafi Tahmazian, a senior portfolio manager at Canoe Financial said Friday.

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“These are small leaks that Elliott is saying can turn into bigger leaks.”

Some of the performance problems plaguing Suncor in recent years may come come down to the fact that the company’s assets are among the oldest in the oilsands. Though analysts and investors have expressed concern over the sheer number of safety incidents recently, including on Jan. 6 when a worker was killed in a collision between two haul trucks at Suncor’s Base Plant operation north of Fort McMurray.

“What (Elliott) is pointing out there is what a lot of us have been pointing out,” said Eight Capital analyst Phil Skolnick in an interview.

“It’s one of the reasons I don’t have a “buy” rating on the stock and I haven’t had it in a while. Because when I look at it relative to its peers, there has been underperformance versus expectations.”

With additional reporting from Reuters

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