Activist investor Elliott Investment Management L.P. is targeting Suncor Energy Inc. Canadian oil producer, prompting the company to add five new directors and comprehensive management to change a “slow-moving and overly bureaucratic corporate culture”.
Elliott said the company should also consider selling the retail network to gas stations across Canada to open a higher share price. Suncor stock rose 12 percent to $47.22 in Toronto, its highest level since October 2018.
The Calgary-based company is Canada’s worst-performing oil producer since the start of 2021. Analysts said the stockpile is affected by a series of operational problems, including a fire that hit a refinery in March. and fatal accidents in the past two years. Suncor also cut production steering at its Fort Hills Oil Sands mine in 2021 after finding slopes at the mine to be unstable.
“Suncor now finds itself experiencing recurring operational challenges and safety issues,” John Pike, Elliott partner and portfolio manager, Mike Tomkins, wrote in a letter to the company, citing the company’s missed production targets and higher costs.
Elliott, founded by Paul Singer, has not nominated directors for this year’s annual general meeting scheduled for May 10th. The company, which holds a 3.4 percent economic stake in Suncor, could increase that stake or partner with other shareholders to call them a private meeting if the company resists change, according to a person familiar with the matter.
The company said in a presentation that the “complete upside” of the restructuring plan would put Suncor’s share price at $68, up more than 50 percent from Wednesday’s close.
“Our investment in Suncor is based on our conviction that, with the right leadership, the company can reclaim its previous success. Suncor’s integrated oil sands operations are an important part of the global energy supply, and we believe these assets are undervalued,” said the letter from Pike and Tomkins.
In an emailed statement, the company said that Suncor’s board of directors and management “value the views of its shareholders and will take the time to carefully evaluate the recommendations and materials presented, with the goal of enhancing shareholder value and other stakeholders.” Suncor “looks forward to engaging with Elliott at the appropriate time to better understand their view” and remains confident in its current growth strategy, the statement said.
While the stock is back 107 percent since the start of last year, as of Wednesday’s close, those gains narrowed against 172 percent from Canadian Natural Resources Ltd. Cenovus Energy Inc returned more than 200 percent and Imperial Oil Ltd., with 168 percent. The numbers include dividends.
“Given how long the safety issues have lasted and the number of deaths they’ve had, I think it’s fair to say that their eyes weren’t on the safety ball as much as they were,” Eric Nuttall, a senior managing director at Ninepoint Partners, said on BNN Bloomberg TV.
Nuttall called Elliott “the real deal” and said her Suncor appearance could lead to more active and valuable investors looking into Canadian energy stocks.
Some investors believe that the problems with Suncor date back to its acquisition of Petro-Canada in 2009.
“The acquisitions that they have made have consistently deteriorated the quality of the portfolio, and I think it is really interesting now that they are back in place,” said Ryan Bushell, president and portfolio manager at Newhaven Asset Management.