Activist investor Elliott Investment Management seeking changes at Suncor Energy

One of North America's most aggressive activist investors has set its sights on Suncor Energy Inc., seeking an overhaul of the company's board and management team, along with the possible sale of Petro-Canada.

Changes include review of executive leadership, adding independent board directors

A processing unit is shown at Suncor's Fort Hills facility in Fort McMurray, Alta., in 2018. Investor Elliott Investment Management is seeking changes to the board of directors at Suncor, which is headquartered in Calgary. (Jason Franson/The Canadian Press)

One of North America's most aggressive activist investors has set its sights on Suncor Energy Inc., seeking an overhaul of the company's board and management team, along with the possible sale of Petro-Canada.

In a letter to Suncor's board on Thursday, U.S.-based Elliott Investment Management expressed frustration in what it said is a recent decline in performance at the energy producer.

"It is evident that Suncor's status quo is not working," Elliott partner John Pike and portfolio manager Mike Tomkins wrote in their letter.

"Shareholders have seen their investment lag behind nearly all large-cap North American oil and gas companies, as Suncor's share price has remained virtually unchanged since early 2019, even as oil prices have climbed to their highest level in almost a decade."

Suncor, which was the most valuable Canadian energy company by market capitalization from 2000 until 2018, has been in a slump recently. Elliott's letter points out the company's share price has lagged that of its closest oilsands peer, Canadian Natural Resources Ltd., by 137 per cent over the last three years.

The company has also been plagued by a recent spate of operational difficulties — missing its corporate production guidance due to equipment failure and cold weather— as well as significant workplace safety concerns. Since 2014, there have been 12 workplace deaths at Suncor sites, which Elliott said is more than all of the company's closest peers combined.

In their letter, Pike and Tomkins said all of these problems have roots in what they called Suncor's "slow-moving, overly bureaucratic corporate culture."

Elliot Investment Management is a well-known activist investor with approximately US$51.5 billion of assets under management. It has previously targeted large corporations such as AT&T, Hyundai, and Softbank.

It holds a 3.4 per cent economic interest including shares and cash-settled derivatives contracts in the Calgary-based company.

In its letter, Elliott laid out its proposal for Suncor, which includes adding five new independent directors to the company's board and then undertaking a strategic review of Suncor's executive management team, including CEO Mark Little.

It also wants Suncor to explore opportunities to "unlock the value" outside of its core oilsands business. Possibilities could include the potential sale or spinoff of Suncor's Petro-Canada 1,800-location retail network.

Elliott will have done its research and clearly knows other Suncor investors are also unhappy, said Josh Young, chief investment officer and founder of Bison Investments, an oil and gas-focused investment firm based in Houston, TX.

Young pointed out that Suncor cut its dividend by over 50 per cent in the downturn of 2020, while Canadian Natural Resources Ltd. was able to maintain its dividend in spite the market challenges.

"Even if Elliott doesn't own a lot of the stock, they've probably rightly identified that a lot of (Suncor's) common shareholders would be interested in a change," Young said.

More activist investment activity in oil and gas sector possible

Young said while activist investors have historically not had a lot of success targeting oil and gas companies, it's likely that some of them are taking a fresh look at the sector right now given high oil prices and the industry's positive market fundamentals in the near-term.

"It makes sense that activist investors are getting the all-clear from the market to refocus and go after low-hanging fruit," he said. "And Suncor is a pretty obvious one — you have to be a big fund to target them, but it's a pretty obvious target."

Young added it wouldn't be surprising to see more activist investment activity in the oil and gas sector, now that the ice has been broken.

"It seems more doable, now that Elliott's done it," Young said.

In their letter, Pike and Tomkins said they look forward to engaging with the board, along with their fellow shareholders, and hoped to meet with the board as soon as possible.

Suncor's share price was up $4.74, or 11.3 per cent, to $46.90 in mid-afternoon trading Thursday on the Toronto Stock Exchange.

Elliott said it believes its proposal for Suncor could result in a share price of $60 or higher, a roughly 50 per cent increase in shareholder value.