Suncor Energy Inc. said on July 18 it had added three new independent directors and would review a possible sale of its retail gas station business, as part of an agreement with activist investor Elliott Investment Management.

Canada’s second-largest crude oil producer has been under pressure from Elliott over its operational and safety record, and Suncor CEO Mark Little resigned earlier this month.

Elliott, which owns about 3% of Suncor, has urged the company to bring in new directors and undergo a management and strategic review. The investment firm could not be reached for comment.

Suncor owns Petro-Canada, a network of 1,800 retail and wholesale fuel stations across Canada.

Shares of Calgary, Alberta-based Suncor rose 2.4% amid broader gains for oil companies on Monday.

“The stock will pop on the news, but is it the best for them in the long run [to sell the retail business]? Probably not,” said Darren Sissons, vice president and partner at Campbell, Lee & Ross, a Suncor shareholder.

Selling the retail business would reduce Suncor’s diversification, Sissons said.

The bidders for that business will likely include Alimentation Couche-Tard Inc. and Seven & i Holdings Co Ltd., better known as 7-Eleven, said Brian Madden, chief investment officer at First Avenue Investment Counsel, a Couche-Tard shareholder.

“They’d be crazy not to [bid]. It’s a trophy asset,” Madden said.

Couche-Tard and 7-Eleven could not be immediately reached for comment.

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Private equity and infrastructure funds are also likely to be interested, said a source familiar with the matter. The source, who spoke on condition of anonymity, said Elliott is satisfied that it has largely achieved its objectives through the changes Suncor announced on July 18 and since the activist investor revealed its demands in April.

Suncor’s retail business could be worth CA$5 billion (US$3.86 billion) to CA$8 billion (US$6.18 billion), National Bank analyst Travis Wood said.

Little, the former Suncor CEO, said in May that the company was not interested in selling the unit.

Suncor said it would provide an update on the strategic review in the fourth quarter.

Hart Energy July 2022 - Suncor Energy Elliott Management Agreement - Suncor versus Canadian Peers Graph by Reuters
(Source: Courtesy of Reuters)

Bigger Board

Suncor named industry veterans Ian Ashby, Chris Seasons and Jackie Sheppard as its new independent directors. Seasons and Sheppard will oversee the strategic review and make a recommendation as well as join Suncor’s search committee for a permanent CEO.

With the changes, Suncor’s board will expand to 13 members, the company said, adding that two existing directors will retire by the end of the year.

Little stepped down as Suncor’s CEO after a worker fatality at the company’s oil sands Base Mine in northern Alberta.

The death was the fifth at a Suncor site since 2019, when Little became CEO, and the 13th since 2014, by far the worst safety record among Canadian oil producers.

(US$1 = 1.2950 Canadian dollars)