Good news flowed in at the exploration & production
Anadarko Petroleum Corporation
) after it settled the long, drawn-out dispute regarding Tronox.
Anadarko agreed to pay $5.15 billion to the plaintiffs for
settlement of all claims against Kerr-McGee. The settlement after
the lengthy legal proceeding was well received by the investors
with Anadarko's shares gaining 14.51% in intraday trade to close
at $99.02 yesterday.
Anadarko Petroleum had acquired Kerr-McGee in 2006, with an
intention to expand its footprint in the Gulf of Mexico and the
Rockies region. But Anadarko was drawn into a legal tangle when
Tronox filed a case in May 2009 claiming that Kerr-McGee, its
parent company, had acted fraudulently in its spin-off.
Kerr-McGee spun off a part of its business as Tronox before it
was merged with Anadarko in 2006.
) filed a litigation claiming that Kerr-McGee had passed its
environmental liabilities on its shoulders and then in a
vanishing act merged into Anadarko. Consequently, Tronox failed
to meet the required environmental obligation and filed for
bankruptcy in 2009.
In 2011, Tronox came out of bankruptcy as a reorganized company.
A litigation trust replaced Tronox as the plaintiff in this case.
Claims Finally Settled
An initial claim of $25 billion was made against Anadarko for
cleaning up more than 2,000 sites and providing relief to other
Tronox creditors. In mid-Dec 2013, the United States Bankruptcy
Court found Anadarko legally responsible for the mess and hinted
that the company might have to pay $14.5 billion as compensation.
Finally, a settlement was reached between the parties, at $5.15
billion, which included the principal amount of $3.98 billion
plus 6% interest outstanding from the date of filing the
litigation in 2009.
The Tronox case has long been the albatross tied to Anadarko's
neck and the settlement can only mean good for the company.
Moreover, the value of the final settlement is much lower than
what was expected. Last quarter Anadarko recorded a contingent
liability of $850 million for Tronox.
The company, with its existing cash balance and credit
facility, will be able to settle the claim. Now with the overhang
removed, Anadarko will be able to focus on what it does best,
find new generation assets and strengthen its production
ANADARKO PETROL (APC): Free Stock Analysis
BP PLC (BP): Free Stock Analysis Report
EOG RES INC (EOG): Free Stock Analysis Report
TRONOX LTD (TROX): Free Stock Analysis Report
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Even if the settlement has been reached at a much lower amount
than what was initially claimed, it is by far the largest U.S.
environment fine leveled to date. It even surpasses the $4
billion paid by
) to settle the Deepwater Horizon oil spill in Gulf of Mexico.
This settlement amount will be directed to detoxify the damaged
environment over a multi-year period.
To Sum Up
If we go by today's initial trade on the index, Anadarko's shares
are destined to move higher from yesterday's close. This is
arguably the best possible solution for the long standing Tronox
Anadarko currently has a Zacks Rank #3 (Hold). Investors
interested in exploration & production stocks can consider
EOG Resources, Inc.
), which holds a Zacks Rank #2 (Buy).