Shares of the Canadian tar sands giant Suncor Energy (SU 0.38%) jumped 10.3% in April, according to data provided by S&P Global Market Intelligence. What makes this gain even more remarkable is that the S&P500 fell 8.8% last month.
The main catalyst fueling the oil inventoryThe rally was news that an activist investor had taken a stake in the company with the intention of shaking things up.
Elliott Investment Management has disclosed that it has invested in Suncor Energy and holds a 3.4% economic stake in the oil company. The activist investor also sent a letter to Suncor Energy’s board of directors calling for change. The company described a series of issues with the company, which have caused its share price to stagnate since 2019 despite soaring crude oil prices.
Elliott calls for board improvement and strategic and management review. He sees up to $30 billion in value creation opportunities, which could lead to a more than 50% increase in the stock price. Potential changes he described were replacing CEO Mark Little, increasing shareholder return from 50% to 80% of its post-dividend cash flow, and exploring the sale of several business units.
One thing about Suncor that the activist investor liked was its plan to dedicate 10% of its capital spending to carbon reduction projects. This is notable because the company had made a major change to this strategy earlier in the month by increasing its focus on hydrogen and renewable fuels. It is partnering with a project to build a world-class hydrogen plant in Alberta and deploying next-generation renewable fuel technologies. As part of this change in strategy, the company plans to sell its wind and solar energy assets.
Elliott Investment Management has an excellent track record of investing in the oil and gas sector. He invests in companies that he believes have underperformed their potential. The company then tries to work with management teams to improve performance, unlock value and deliver higher returns to all shareholders.
While Suncor issued a press release indicating its openness to working with Elliott, the investment firm has issued strong criticism of the board and Little, which may provoke some resistance. However, given Elliott’s successes and Suncor’s relative underperformance, he may be able to persuade other investors to join him in pushing for change. These future moves could give Suncor Energy shares the fuel they need to continue rising in the coming months.