CEO says Suncor should retain ownership of Petro-Canada chain as energy firm reports highest quarterly dividend on record

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Suncor Energy Inc. SU-T has reported the highest quarterly dividend in the company’s history, a much-needed salve as it faces demands for significant, structural change from a powerful activist investor.

And chief executive officer Mark Little is adamant that Suncor should retain ownership of its Petro-Canada gas station chain, despite pressure to explore its sale.

Suncor’s fortunes come amid a windfall across the energy sector this earnings season, buoyed largely by a surge in oil and gas prices due to global supply fears related to Russia’s war on Ukraine. In the past two weeks, for example, Canadian Natural Resources Ltd. announced it had doubled its quarterly net profit, and Cenovus Energy Inc. reported a jump of more than seven-fold.

Suncor said Monday its quarterly dividend of 47 cents per share was a 12 per cent increase over the prior quarter, and the highest in the company’s history.

The company attributed the boost to a combination of high commodity prices and operational improvements, including the $3.4-billion it brought in from its oil sands operations. That’s despite the fact its total upstream production was down about 20,000 barrels per day compared with the first quarter of 2021.

Suncor is also exploring the sale of its entire U.K. portfolio, and reiterated its plans to divest its wind and solar assets to “focus on areas of energy expansion that are more complementary to its base business, with an emphasis on hydrogen, renewable fuels and an ongoing participation in low-carbon power.”

Mr. Little said Tuesday the market has shown “massive interest” in Suncor’s wind and solar assets, to the point where it’s slowing down the sale because the company has had to field so many inquiries.

“I’m very confident that that will move forward, and we’ll get really good value associated with it,” he said.

Suncor’s net earnings were $2.9-billion in Q1 of 2022 (compared to $821-million in the prior year quarter) and the company reduced its net debt by $728-million.

The oil company’s fortunes nevertheless came under the microscope on Tuesday morning as executives fielded questions from analysts during its quarterly earnings call. Shareholders will pitch questions later Tuesday at Suncor’s annual general meeting.

And the elephant in the room is activist hedge fund Elliott Investment Management LP, a Florida-based group pushing for a shakeup of Suncor and one of the company’s largest shareholders, with a 3.4-per-cent stake.

Elliott went public on April 28 with a letter to Suncor directors containing a swath of proposals it reckoned would add $30-billion to the energy company’s market capitalization, “a potential increase of 50 per cent or more from today.”

In his first public comments about the demands, Mr. Little said Tuesday morning that Suncor’s board and management team “look forward to engaging in constructive discussions with Elliott, as we do with all our major shareholders, to better understand their perspective.”

One of Elliott’s asks is to explore the sale of Petro-Canada - one of Canada’s largest networks of gas stations - but Mr. Little rebuffed the idea on Tuesday.

“We think it’s key to maximizing the value across the integrated business chain, and it’s also one of the reasons that we’ve been able to deliver twice the profitability versus our next closest peer, particularly through COVID,” he said.

“We think we have the best downstream business in North America and we think it’s important that it stay together.”

Elliott has made no bones about the fact it wants to oust several directors at the major oil sands producer and elect five of its own choosing. It also wants an executive leadership review, an overhaul of Suncor’s operational and safety culture, and enhanced capital returns.

In its April letter, Elliott said that missed production goals, high costs and a number of employee fatalities and other safety incidents “all find their roots in a slow-moving, overly bureaucratic corporate culture that appears to have lost the dynamism that not long ago made Suncor the most valuable energy company in Canada.”

Suncor shares on the Toronto Stock Exchange surged 12 per cent when Elliott went public with its demands.

Although they had dropped slightly on Monday amid a general market slide, they were still up more than 60 per cent year-on-year when markets closed.

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