US Anadarko ready to fight Tronox opinion that may cost it $14.2bn

13 December 2013 16:27 Source:ICIS News

US Anadarko ready to fight Tronox opinion that may cost it $14.2bnHOUSTON (ICIS)--Anadarko plans to pursue every avenue available to the company once a judgement is issued in the Tronox litigation, which could cost the company up to $14.2bn (€10.4bn), the US-based energy producer said late on Thursday.

US Bankruptcy Judge Allan Gropper issued an opinion in the case earlier that day, finding that Anadarko's subsidiary Kerr-McGee was liable for fraudulent transfers in connection to the 2005 spin-off of Tronox, a titanium dioxide (TiO2) producer. Before the spin-off, Tronox was part of Kerr-McGee.

Tronox had alleged that Kerr-McGee had transferred valuable oil-and-gas assets out of the company while burdening it with massive environmental liabilities.

Tronox alleged that the strategy was part of a scheme to make Kerr-McGee an attractive acquisition target. Within months of the Tronox spin-off, Anadarko acquired Kerr-McGee for $18bn.

From its beginnings as a standalone company, Tronox alleged that it struggled under the weight of the environmental liabilities it inherited from Kerr-McGee. Tronox alleged it was insolvent from day one and was doomed to fail.

In January 2009, Tronox filed for bankruptcy protection under Chapter 11. It sued Kerr-McGee in May 2009.

Trusts made up of Tronox creditors ultimately took over the litigation, which allowed the pigment producer to emerge from bankruptcy protection in 2011. Because of this arrangement, Tronox will receive no direct benefit from the reward.

Instead, any reward will go to the trusts, which represent the interests of environmental regulators and individuals with claims alleging damages from the polluted sites.

Tronox, however, will stand to benefit through tax deductions that are connected to the trusts, the company said in a statement. The size of these deductions will be determined by how much money the trusts spend to clean up the polluted sites and to compensate people who suffered damages from these sites.

Tronox estimates that these tax benefits could total hundreds of millions of dollars annually and that these benefits could last for decades.

The next step in the litigation is for the judge to determine the size of the reward and issue a final judgement.

One method of calculating the damages would reward the Tronox trusts $5.15bn, Anadarko said. Another method would reward the trusts $14.17bn. Attorney fees would then be added to the sums.

The two sides now have 60 days to file more briefs, Anadarko said. The court would then issue a judgement, which would be subject to appeal.

"Given the significant factual evidence supporting our position, we vehemently disagree with the judge's memorandum of opinion, and we fully expect to pursue every avenue available to us through the appellate process to protect the interests of our stakeholders, once a final judgement including damages has been rendered," said Anadarko CEO Al Walker in a news release.

Anadarko's stock plunged following the judge's opinion. It was trading at $77.15 late Friday morning, down 7.8%. Tronox stock traded at $22.57, up 6.6%.

($1 = €0.73)

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By Al Greenwood