In a letter to Suncor’s board on Thursday, US-based Elliott Investment Management expressed frustration with what it said was a recent drop in energy efficiency. “It is clear that Suncor’s status quo is not working,” Elliott associate John Pike and portfolio manager Mike Tomkins wrote in the letter. “Shareholders have seen their investment lag behind almost all of North America’s large-cap oil and gas companies, as Suncor’s share price has remained virtually unchanged since early 2019, although oil prices have climbed to their highest level in almost a decade “. Suncor, which was Canada’s most valuable energy company from 2000 to 2018, was in recession recently. Elliott’s letter notes that the company’s share price is 137 percent 137% lower than the price of the nearest Canadian Natural Resources Ltd. peer company. The company is also plagued by a recent wave of operational difficulties – ignoring 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, which, according to Elliott, are more than all the company’s closest peers combined. In their letter, Pike and Tomkins said all of these problems were rooted in what they called Suncor’s “slow, overly bureaucratic corporate culture.” Elliot Investment Management is a well-known activist investor with approximately $ 51.5 billion in assets under management. In the past, it had targeted large companies such as AT&T, Hyundai and Softbank. It has a financial interest of 3.4 per cent, including shares and derivatives contracts settled in cash at the Calgary-based company. In her letter, Elliott presented her proposal for Suncor, which includes adding five new independent directors to the company’s board of directors and then undertaking a strategic review of Suncor’s executive management team, including CEO Mark Little. Suncor also wants to explore opportunities to “unlock value” outside of its core lubricant business. Possibilities could include the potential sale or spinoff of Suncor Petro-Canada’s 1,800-site retail network. Elliott will have done his research and knows full well that other Suncor investors are also unhappy, said Josh Young, chief investment officer and founder of Bison Investments, an Houston-based oil and gas investment company. Texas. Young noted that Suncor reduced its dividend by more than 50 percent in the 2020 recession, while Canadian Natural Resources Ltd. managed to maintain its dividend despite market challenges. “Even if Elliott does not own much of the stock, they have probably rightly identified that many (Suncor) shareholders will be interested in a change,” Young said.
Possible more activist investment activity in the oil and gas sector
Young said that while investor activists have historically had little success targeting oil and gas companies, it is likely that some of them are taking a fresh look at the sector right now, given high oil prices and positive market momentum in the short term. . “It makes sense that activist investors are getting clear from the market to refocus and pursue the low fruit,” he said. “And Suncor is pretty obvious – you have to be a big fundraiser to target them, but it’s a pretty obvious goal.” Young added that it would not be surprising to see more activist investment activity in the oil and gas sector now that the ice has broken. “It seems more feasible now that Eliot has finished,” Yang said. In their letter, Pike and Tomkins said they look forward to working with the board, along with their other shareholders, and hope to meet with the board as soon as possible. The Suncor share price rose $ 4.74, or 11.3 percent, to $ 46.90 in Thursday afternoon trading on the Toronto Stock Exchange. Elliott said it believes its Suncor proposal could lead to a share price of $ 60 or higher, an increase of about 50 percent in shareholder value.
