Noah Zivitz

Managing Editor, BNN Bloomberg

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Suncor Energy Inc. announced a truce with an activist investor that will see the Canadian oil sands giant expand its board of directors and possibly sell its retail business.

As part of its pact with Elliott Investment Management, Suncor said Monday it is immediately adding ex-BHP Billiton executive Ian Ashby, Arc Financial Corp. Partner and ex-Devon Canada President Chris Seasons, and ex-Talisman Energy Inc. Executive Vice-President Jackie Sheppard to its board of directors. Suncor added that the agreement also grants Elliott the right to nominate another director if the company doesn’t meet certain performance requirements by the end of this year.

Suncor said Seasons and Sheppard will serve on the board committee that is leading the search for the company’s next chief executive, after Suncor recently parted ways with Mark Little.

Suncor also said it will conduct a strategic review of its downstream retail business, which includes approximately 1,500 Petro-Canada fuel stations.

“The board's review of the retail business builds on our long-standing commitment to openly consider alternatives to enhance shareholder value and will help ensure the company is well positioned for even greater success and value creation in the future,” said Suncor Chair Michael Wilson in a press release Monday.

In a report to clients, Credit Suisse Analyst Manav Gupta estimated Suncor’s retail business could fetch up to $11.2 billion in pre-tax proceeds (or $8.9 billion after tax) if an outright sale is pursued. Gupta said the windfall from a transaction could go toward boosting shareholder returns or potentially raising Suncor’s stake in the Fort Hills oil sands project. Currently, Suncor owns 54.11 per cent of Fort Hills, Total E&P Canada Ltd. owns 24.58 per cent, and Teck Resources owns the remaining 21.31 per cent.

While the arrangement with Elliott was welcomed by the market Monday as Suncor shares rallied in early trading on the Toronto Stock Exchange, Newhaven Asset Management President and Portfolio Manager Ryan Bushell said he still has his doubts about the oil producer because of safety problems, as well as its landmark purchase of Petro-Canada in 2009 and a track record of boosting its stake in the Syncrude oil sands operations.

“I don’t think it’s a bad company, but I do think along the way they’ve accumulated some baggage that now they’re dealing with. And Elliott obviously sees, you know, for a long time [Suncor] was a premium-multiple company with inferior assets, and now it’s probably too cheap,” said Bushell, who said he does not own Suncor shares for clients. 

The developments Monday come almost three months after Elliott initially put Suncor on notice. The hedge fund manager — whose founder, Paul Singer, is synonymous with shareholder activism in the United States — announced April 28 it built a 3.4 per cent stake in Suncor and said it would push to add five new directors to the company’s board, while calling for a review of the company’s executive leadership and its retail business. Elliott also sounded the alarm about safety and operational problems that had weighed on Suncor’s performance: its presentation at the time highlighted that there had been 12 fatalities at Suncor sites since 2014.

Before his abrupt exit as Suncor’s president and chief executive, Little said the dialogue with Elliott was “just a normal part of the journey.” On July 8, Suncor announced it was parting ways with Little, who was replaced on an interim basis by the company’s executive vice-president for downstream operations, Kris Smith. Little’s departure was announced one day after a contractor was killed at Suncor’s Base Plant mine.

In its announcement Monday, Suncor said the agreement with Elliott includes “customary standstill, voting and other provisions.”

“As a significant investor, we look forward to continuing to work constructively with Suncor as it takes important steps to achieve best-in-class safety, improve operations and restore its industry leadership,” said Elliott Partner John Pike and Portfolio Manager Mike Tomkins in the press release.