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Noah Zivitz

Managing Editor, BNN Bloomberg


The abrupt departure of Mark Little as Suncor Energy Inc.'s president and chief executive is not a silver bullet for a company that has been beset by safety concerns in recent years, analysts said.

"This move does not come as a surprise; nonetheless, we do not see it as the solution to Suncor's problems — IE, this is not just the CEO's fault, in our view. Instead, this is about the corporate culture where accidental deaths have plagued the company even prior to Mr. Little's tenure as CEO began in 2019," wrote Phil Skolnick, an analyst at Eight Capital, in a report to clients Monday.

Suncor announced Little's departure by mutual agreement late Friday, little more than 24 hours after another fatality at one of its mines. While no specific mention of the tragedy was mentioned when Suncor announced that Little was being replaced on an interim basis by Executive Vice-President Kris Smith, the company's chair addressed what had become a pattern of tragedies.

"Suncor is committed to achieving safety and operational excellence across our business, and we must acknowledge where we have fallen short and recognize the critical need for change," said Michael Wilson in the release.

The recent history of fatalities at Suncor's facilities has cast the company in an unfavourable light and attracted scorn from some investors. Elliott Management, an American hedge fund known for its activist tendencies, put Suncor on notice in April, announcing it would seek to add five new independent directors to the company's board and evaluate possible management changes.

At the time, Elliott said there was a need to "overhaul the company's operational and safety culture, which is critical if Suncor is to regain its place as a top performer," and its presentation included a chart showing there had been 12 employee and contractor deaths at Suncor since 2014.

While Suncor shares have rallied this year, with a gain of 34 per cent through the close of trading Friday, it had long underperformed against its largest peer. From 2019 through the end of 2021, Suncor shares shed 17 per cent of their value, compared to a 62 per cent surge for Canadian Natural Resources Ltd., and a 14 per cent rise for the S&P/TSX Composite Index's energy subgroup.

Undoubtedly, Suncor has navigated challenges beyond its safety problems — including production setbacks, volatile prices, and the pandemic; however, Skolnick said the human toll is unlike anything he has witnessed

"This is not about a dividend cut, multiple operational issues, and the inability to meet guidance, all of which Suncor has suffered from. This is about people risk, and this level of events is something we have never seen in the 25 years of covering the sector," he wrote.

Skolnick cut his recommendation on Suncor to sell from neutral (the equivalent of a hold), and lowered his price target to $46.00 per share from $56.00. He cautioned his clients against chasing the activist thesis as Elliott scrutinizes Suncor, and said the global search for Suncor's next chief executive is not going to be a quick fix.

"Ultimately, we believe a meaningful overhaul will be needed; and we see that taking time and money."

Travis Wood, who covers Suncor at National Bank of Canada Financial Markets, maintained his sector perform recommendation and $73.00 price target on Suncor; however, he also stated that the need for change extends beyond whoever the company’s CEO is.

"The size, scale and integrated nature of Suncor’s operations is another reason we do not believe the blame should fall on one person, leaving us to consider that additional executive changes will likely be required to properly and effectively strike cultural change across Suncor’s ~17,000 people (including contractors), which is more than Canadian Natural Resources and Cenovus Energy Inc. combined," Wood wrote in a report to clients.

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