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Anadarko Shares Soar on Tronox Settlement

Anadarko Petroleum Corp. shares climbed more than 14% Thursday after the company agreed to pay $5.15 billion to plaintiffs involved in legacy Tronox Inc. operations. The settlement, about one-third the amount Anadarko was expected to pay, is the largest environmental recovery ever, the U.S. Department of Justice said.

The stock ended the day at its highest level ever: $98.96/share, up 14.44% ($12.49). Almost 40.5 million shares traded hands, 10 times the average volume for the past three months.

The agreement resolves all claims regarding alleged actions by Kerr-McGee Corp. before it merged with Anadarko in 2007 (see Daily GPI, Jan. 30, 2007). Before the companies merged, Kerr-McGee in 2006 spun off Tronox, which at the time was burdened with environmental liabilities related to pollution site cleanups in the United States and elsewhere (see Daily GPI, April 3, 2006).

However, a federal judge ruled in December that the two companies had acted improperly to get rid of Tronox before the merger; the ruling was estimated to cost Anadarko as much as $14.5 billion (see Daily GPI, Dec. 13, 2013). Tronox filed for bankruptcy in 2009 and subsequently sued Anadarko and Kerr-McGee, claiming the Tronox sale and merger agreement defrauded the U.S. Environmental Protection Agency (EPA) of funds to clean polluted sites. The U.S. Justice Department, as Tronox's largest creditor, intervened on behalf of the EPA.

"For 85 years, Kerr-McGee operated numerous hazardous businesses, and those businesses caused significant damage to the environment and to communities exposed to contamination," Deputy Attorney General James Cole said. Most of the settlement, around $4.4 billion, is to be used to clean up environmental contamination and to settle environmental claims.

The federal government had sought up to $25 billion to clean close to 2,800 sites and compensate about 8,100 claimants. A trust fund to pay plaintiffs called for 88% of the judgment to go for cleanup; the remainder would be for toxin claims.

"This settlement agreement with the litigation trust and the U.S. government eliminates the uncertainty this dispute has created, and the proceeds will fund the remediation and cleanup of the legacy environmental liabilities and tort claims," said Anadarko CEO Al Walker. "Investor focus can now return to the tremendous value embedded in Anadarko's asset base, allowing our peer-leading operational and exploration results to again become the basis for valuation."

Anadarko agreed to the settlement in exchange for a complete release of all claims against Kerr-McGee, now a subsidiary. The agreement represents a principal sum of about $3.98 billion and 6% interest from the filing of the complaint in May 2009. Federal officials also agreed to provide contribution protection from third-party claims seeking reimbursement from Kerr-McGee at more than 4,000 sites covered by the covenants.

The settlement is subject to a recommendation by the U.S. Bankruptcy Court and the U.S. District Court, both in the Southern District of New York.

Anadarko expects the Tronox proceeding to be stayed pending final approval. The claims in the proceeding would be dismissed after the payment is made. Anadarko said its "significant" cash position and available $5 billion credit facility would provide flexibility to fund the payment.

However, the impact of the agreement is going to be reflected in 1Q2014 financial statements, The Woodlands, TX-based operator said. A gross tax benefit of $1.65 billion is associated with the settlement, offset by about $1.10 billion in uncertain tax positions, now resulting in a net tax benefit of about $550 million for the quarter.

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