Anadarko ends long legal battle with multibillion-dollar settlement

HOUSTON – Anadarko Petroleum said Thursday it has agreed to pay creditors and government officials $5.15 billion to settle years of legal battles over allegations that a subsidiary had improperly transferred environmental liabilities to a spin-off company in 2005.

It’s the largest environmental enforcement payment in history, the U.S. Justice Department said Thursday. Wall Street investors added $6.3 billion back to Anadarko’s market value after the news broke. Shares closed up $12.55 on Thursday to $99.02 on the New York Stock Exchange.

The dispute arose from corporate acquisitions and spin offs that closed nearly a decade ago. Anadarko, which is based in The Woodlands, had paid $18 billion for Kerr-McGee in 2006, less than a year after the Oklahoma oil and gas producer had spun off its chemicals business into titanium producer Tronox Inc.

Stamford, Conn.-based Tronox sued Anadarko and its subsidiary and filed for bankruptcy in 2009, alleging that Kerr-McGee had left it with too much in liabilities and not enough capital to remain in business. A federal bankruptcy judge in Manhattan had ruled late last year that the Anadarko unit owed up to $14 billion in liabilities. Anadarko shares had plunged.

“This will eliminate a lot of the uncertainty that the Tronox case has created,” Anadarko Chairman, President and CEO Al Walker said in an interview with FuelFix on Thursday. “It’s wonderful to get this behind us because it allows Anadarko to be fairly valued in the marketplace.”

Walker said lifting the shroud of uncertainty around Anadarko’s value will let the company pursue ventures it had not been able to while the legal fights continued.

It was the right call, said Fadel Gheit, an analyst with Oppenheimer & Co.

“This is the best move Al Walker has ever made,” Gheit said, adding that Wall Street applauded the news even more than it had the $4 billion settlement former Anadarko CEO Jim Hackett had made in response to the 2010 Gulf of Mexico oil spill. “The markets response to his action was incredible. This is a cloud that has been hanging on the stock for a year or more. It should reveal what is under the hood in terms of the value of the company.”

Environmental cleanup

The record settlement resolved all claims against its Kerr-McGee unit. Plaintiffs in the case included Tronox’s financial stakeholders, the Department of Justice, the Environmental Protection Agency and class action attorneys for environmental damage claimants. The company is also asking the court to bar further claims brought by third parties.

The principal amount of Thursday’s settlement was $3.98 billion, in the middle of Anadarko’s estimated range for the settlement, Walker noted. The remaining portion was reached through a 6 percent interest payment.

The settlement is still subject to the recommendation of U.S. Bankruptcy Judge Allan Gropper and the approval of the U.S. District Court in the Southern District of New York. Andarko said it expects claims to be dismissed in the third quarter after the settlement payments are made.

The Justice Department said that more than $4.4 billion of the settlement will be made available for environmental cleanup efforts and claims.

Click to enlarge.
Click to enlarge.

“Kerr-McGee’s businesses all over this country left significant, lasting environmental damage in their wake,” Deputy Attorney General James Cole said in a written statement.  “It tried to shed its responsibility for this environmental damage and stick the United States taxpayers with the huge cleanup bill.”

The second-largest government recovery for contaminated sites came from its 2009 settlement with American Smelting and Refining Co., known as Asarco, for about $1.8 billion, said Wyn Hornbuckle, a spokesman for the Justice Department.

Claimants had alleged the original Kerr McGee had contaminated several regions across the country through its businesses in uranium mining, creosote wood treating, processing radioactive thorium and manufacturing components of rocket fuel, according to the Justice Department.

The company allegedly left radioactive uranium waste across the Navajo Nation, creosote waste in the Northeastern, Midwestern and Southern United States. It left perchlorate waste in Nevada, the agency said.

As part of the settlement, $1.1 billion will go to a trust that will clean up two dozen contaminated sites around the United States, and another $1.1 billion will be paid to another trust to clean up one of Kerr McGee’s former chemical manufacturing sites in Nevada.

The EPA will use $985 million of the settlement amount to pay for cleaning up nearly 50 abandoned uranium mines in and around the Navajo Nation in New Mexico, where there is still radioactive waste.

Another $441 million will be used to cleanup thorium contamination in New Jersey and to replace funds used by the EPA to clean up a federal creosote site in New Jersey.

The company was set to appear in court Friday to defend its position in another round of testimony that would have allowed Gropper to hear further arguments about the amount it owed. The settlement negates the need to appeal Gropper’s decision.

Finding equilibrium

Bobby Reeves, general counsel and chief administrative officer for Anadarko, said in an interview with FuelFix that the company has spoken with the plaintiffs “for quite some time,” but only gained traction in their talks in recent weeks. The company, Reeves said, has substantial liquidity top pay for the settlement, including more than $6 billion in cash and a $5 billion unused line of credit.

“This was just a negotiation like any other,” Reeves said. “We both recognized that a settlement was the right way to bring closure to it. Both sides tried to find that equilibrium.”

In January, Anadarko had said in court filings it had used Gropper’s own framework to arrive at liability costs as low as $850 million.

Walker emphasized that the alleged transfers took place before Anadarko’s deal to acquire Kerr-McGee. Four years earlier, Anadarko had passed up on buying the firm because it had old environmental liabilities with “no end in sight for at least 30 more years,” according to court documents.

Walker said it’s time the market puts the right value on the company. The uncertainty surrounding the amount Anadarko owed prohibited its day-to-day performance from being reflected in its share price, he said.

The executive pointed to an analysis by Wood MacKenzie that said Anadarko has created more value in U.S. shale plays than many of its peers. The deal will also enhance Anadarko’s ability to explore and develop deep-water assets in the Gulf of Mexico and around the world, Walker said.

“We think getting this behind us does a lot of things to return investor focus to our day-to-day operational performance,” Walker said. “We’re very proud of our environmental track record. With this behind us, we have the ability to do certain things we haven’t been able to do.”

Anadarko-Tronox Settlement by FuelFix