Anadarko to settle US Tronox litigation for $5.15bn

HOUSTON (ICIS)–Anadarko has agreed to settle an environmental lawsuit for $5.15bn, litigation that stemmed from its acquisition of Kerr-McGee and the spin-off of the latter’s chemical division, Tronox, the US-based energy producer said on Thursday.

The agreement is subject to court approval, Anadarko said. The company expects the process to be completed by the end of the third quarter.

The award will go mostly to environmental regulators.

Although the amount is far from a potential $14bn, it still marks the largest award of its kind in US history, according to a statement by John Hueston, a partner in the law firm Irell & Manella. The law firm represented the plaintiffs in the case.

The lawsuit is connected to three events: the spin-off of Tronox, the acquisition of Kerr-McGee by Anadarko and the bankruptcy of Tronox.

Tronox, a producer of titanium dioxide (TiO2), was part of Kerr-McGee before its spin-off in 2006.

Tronox alleged that, prior to its spin-off, Kerr-McGee transferred out valuable oil and gas assets while burdening the company 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.

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

During the bankruptcy, Tronox’s largest creditors took over the litigation. These creditors included the Environmental Protection Agency (EPA), other environmental regulators and tort claimants. They are represented by trusts.

Late in December, a judge wrote an opinion in favour of the trusts. The size of the subsequent award could have exceeded $14bn.

On the other extreme, Anadarko had argued that the award should be reduced to $850m.

Regarding the settlement, Anadarko CEO Al Walker said it will eliminate the uncertainty caused by the litigation. “Investor focus can now return to the tremendous value embedded in Anadarko’s asset base,” he said.

Under the terms of the settlement, the trusts and Anadarko will each release their claims from each other, Anadarko said. Both sides also agreed not to sue.

Tronox has since emerged from bankruptcy protection, and the company’s stock is now traded on the New York Stock Exchange (NYSE).

Tronox itself will not directly benefit from any award, since the litigation was taken over by the trusts.

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.