A processing unit at Suncor Fort Hills facility in Fort McMurray, Alta., on September 10, 2018. Elliott Investment Management is seeking changes to the board of directors at Suncor Energy Inc. and is calling for a review of the company's executive leadership. THE CANADIAN PRESS/Jason Franson

CALGARY - 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 calls 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.

On Thursday afternoon, Suncor issued a statement in which it said it remains confident in the company's strategy, but will take the time to carefully assess Elliott's proposals.

"Suncor’s board and management team looks forward to engaging with Elliott in due course to better understand their perspective," said Suncor spokeswoman Sneh Seetal in the statement.

News of Elliott's move Thursday didn't come as a surprise to Eric Nuttall, senior portfolio manager for the Ninepoint Energy Income Fund and a partner at Toronto-based Ninepoint Partners LP.

"There have been rumblings for the past several months that there may be an activist looking at the company, given how much it's lagged its peers," Nuttall said in an interview.

Still, Nuttall said the news is significant, not just because of Suncor's history and "brand-name recognition" but also because aggressive activist investor activity is rare in the Canadian oil and gas space.

"Not to say the way Elliott is doing it is wrong — it's certainly impactful," he said. "But it's more Canadian to do it in a more kid-glove style."

Even in the U.S., activist investors have historically not had a great success rate when it comes to targeting oil and gas companies, said Josh Young, chief investment officer and founder of Bison Investments, an oil and gas-focused investment firm based in Houston, TX.

However, Young said 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."

Elliott will have done its research and clearly knows that there are other shareholders who share its belief that Suncor has lost its way, Young said.

He 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.

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 closed up $5.07, or 12 per cent, to $47.22 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.

This report by The Canadian Press was first published April 28, 2022.

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