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May 10, 2022

Suncor rejects sale of gas stations as Elliott discussions loom

Elliott’s call on Suncor is a win-win for them, sector is violently undervalued: Portfolio manager

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Suncor Energy Inc. Chief Executive Officer Mark Little said that the company’s board and executives will engage in talks with Elliott Investment Management LP but that he disagrees with one of the activist investor’s main recommendations.

Suncor’s downstream business, which Elliott wants the company to consider selling, is “the best in North America” and should “stay together” with the company’s production assets, Little said Tuesday on the first-quarter earnings call. Suncor owns the Petro-Canada gas-station chain and operates refineries in three Canadian provinces as well as Colorado.

“The retail business is a very strong performer and can go head-to-head with other retail businesses,” Little said. “We think it’s key to maximizing the value across the integrated business chain.”

Elliott and Suncor are due to meet later this week, according to a person familiar with the matter, asking not to be named because the schedule is still private.

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Suncor shares fell 1.3 per cent to CUS$44.80 as of 11:34 a.m. in Toronto, trailing peers Canadian Natural Resources Ltd. and Cenvous Energy Inc., which were both up.

Suncor’s refining and marketing business generated CUS$1.6 billion (US$1.2 billion) in adjusted funds from operations in the first quarter, up 36 per cent from a year earlier. Refinery utilization in the quarter was 94 per cent compared with 92 per cent a year earlier.

Elliott, founded by billionaire Paul Singer, has also asked for five directors to be added to Suncor’s board and a management review after operational mishaps and accidents at its oil-sands projects led to production misses and caused the company’s stock price to trail its peers. An Elliott spokesperson could not be immediately reached for comment.

The investment firm has a track record of shaking up large underperforming oil and gas companies. In 2019, it called for a breakup of Marathon Petroleum Corp. and the removal of its CEO, which won the backing of other institutional investors. 

“The board and management team looks forward to engaging in constructive discussions with Elliott as we do with all our major shareholders to better understand their perspective,” Little told analysts. “We will continue to do so with the clear goal of enhancing the long-term success of Suncor and maximizing long-term value for our shareholders.”

Ahead of its annual meeting Tuesday, Suncor raised its quarterly dividend 12 per cent to 47 Canadian cents per share. The company beat analysts’ expectations for revenue and profit in the first quarter despite higher total operating costs, according to Bloomberg data. The Calgary-based company is now looking to sell off its UK assets in addition to its projects in Norway and its wind-energy portfolio.

Elliott didn’t nominate directors for the meeting. The investment firm, which says it owns a 3.4 per cent economic stake in Suncor, could increase that amount or partner with other shareholders to call a special meeting if the company resists change, a person familiar with the matter said.