“Unenthused” is how Travis Wood describes his confidence in the capacity of Suncor Energy Inc. to fix things when they break.

After Suncor disclosed three incidents at its northern Alberta operations last month - one of which resulted in someone being killed - the National Bank Financial analyst said “major changes will be required to right the ship in regard to the company’s operational and safety culture.” And investors could be forgiven for sharing Wood’s ennui.

Over a six-month period in 2020, Suncor slashed its quarterly dividend 55 per cent in response to the pandemic-spawned market crash and was dethroned by Canadian Natural Resources Ltd. as Canada’s most valuable energy company.

Canadian Natural managed to avoid cutting its own dividend throughout COVID-19; and despite Suncor eventually returning its payout to pre-pandemic levels last October, the company’s market cap still lags its rival’s by a wide margin. As of Friday after the closing bells, Suncor’s value was pegged at $52.6 billion; Canadian Natural’s was just under $80 billion.

Yet by holding the line on further dividend hikes this week and even trimming $300 million from its capital spending plans for the rest of this year, Suncor is showing a level of restraint that could set the stage for the company to reclaim its throne.

“There is a natural tendency for the market to look to the biggest cap company and I think people have been a little bit surprised at how quickly the market cap of Canadian Natural has grown,” said Mike Tims, vice-chairman of Matco Investments, via telephone. Tims, who previously spent three decades at Calgary’s boutique oil and gas-focused investment bank Peters & Co. before retiring as chairman, said Matco currently holds shares of Canadian Natural but not Suncor.

“Canadian Natural ended up being more resolute about maintaining their dividend, which I think they got points for in the end because it worked,” Tims said, while Suncor “has been much more focused on improving their own operations [and] paying down debt.”

Canadian Natural has also been much more growth-focused in recent years, Wood argues, noting via email that the company was able to expand through its purchase of Devon Energy’s Canadian assets and “then moving into picking up very cheap natural gas assets at the cycle lows.”

Suncor, meanwhile, “took missteps operationally,” Wood said. “Although the year 2022 seems like it should shape up to be better, this is now year four of waiting to see if the company can execute on plan and safely.”

Wood downgraded Suncor to the equivalent of a hold in October of 2019 from a longstanding buy rating. After the company released its latest results this week, he trimmed his price target on the stock by one dollar to $52 per share.

“Despite a couple of one-off strong quarters” since the downgrade, Wood told clients in a note published Thursday, “the overall change in operational momentum has yet to be captured.” He ended the note, however, with a sliver of optimism: “The stage seems to be set to showcase operational improvement in 2022.”

There is growing evidence to support that optimism.

Suncor took over operational control of the long-struggling Syncrude mine from Imperial Oil Ltd. last October, after growing its ownership stake in the half-century-old oil sands facility from 12 per cent in 2015 to majority control (58.74 per cent) as of last year.

Since then, according to Scotiabank Analyst Jason Bouvier’s math, utilization at Syncrude has grown from 71 per cent in 2015 to 91 per cent today.

And buried in Suncor’s latest earnings statement was confirmation that it remains on track to realize roughly $100 million in cost savings at Syncrude by the middle of this year.

While that might not be enough to win back the enthusiasm of analysts like Wood and investors who share his views – Suncor “worked hard to give up its once premium valuation and it will take years to earn that back,” Wood said – the company is clearly on the right path.

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