Anadarko unit pushes court to slash billions from its liability in Tronox case
- posted: Jan 15, 2014
HOUSTON – Investors boosted Anadarko Petroleum’s market value by $1.4 billion on Tuesday, a day after the company’s Kerr-McGee unit pushed back on a federal court’s ruling that it owes up to $14 billion in environmental and tort liabilities.
Kerr-McGee said in court filings Monday it used the presiding Manhattan bankruptcy court’s own framework to determine it should only have to pay between $850 million and $1.8 billion to the chemicals business it spun off into titanium producer Tronox Inc. in 2005.
Last month, U.S. Bankruptcy Judge Allan Gropper had found that Anadarko’s subsidiary had left Tronox insolvent and loaded with old environmental liabilities, forcing it to file for bankruptcy in 2009. Investors sent the Houston oil producer’s stock price hurtling down when Gropper estimated its liabilities at $5 billion to $14 billion, the largest amount ever awarded in a bankruptcy case for federal environmental claims and one of the largest environmental enforcement awards in U.S. history.
‘Out of left field’
The ruling had come “completely out of left field” for Wall Street analysts who had expected Anadarko to owe $3 billion at most in the case, said Fadel Gheit, an analyst at Oppenheimer & Co.
“They were staggering numbers. We were shocked,” he said.
Anadarko had bought Kerr-McGee for $18 billion in 2006, a few years after it had passed on buying the Oklahoma-based oil and gas producer because of its large environmental liabilities, according to court documents. The deal was made less than a year after Kerr-McGee spun out Tronox.
Despite investors’ positive reaction to the “compelling argument” in Kerr-McGee’s brief Monday — it said it had used Gropper’s own framework to calculate its liabilities — “no one can declare victory yet,” Gheit said.
The Dec. 12 ruling was not a final ruling, and Tronox has 30 days to respond. If Anadarko appeals the final judgment, the court battles that started half a decade ago could continue for years.
“It’s not done by any stretch of the imagination,” said Andrew Coleman, an analyst with Raymond James. “Any time you have an overhang like this, it’s going to weigh on the ability of what the shares can do.”
Anadarko found Gropper’s calculations of its liabilities to be incorrect and could still appeal, Anadarko Chairman and CEO Al Walker said in a written statement Monday. An Anadarko spokesman declined to comment further Tuesday.
Gheit said a lengthy court battle could leave a cloud of uncertainty hanging over Anadarko’s stock price, making a settlement much more attractive. Investors, he said, would much rather see Anadarko executives focus their efforts on operational growth, and to its credit, Anadarko in 2011 agreed to pay $4 billion in a settlement with BP over claims from the 2010 Gulf of Mexico oil spill.
“The company has a good track record of making tough decisions to move forward,” Gheit said. “Hopefully they’ll be able to put this to bed — obviously not at an outrageous price, but one they’re prepared to pay.”
The company had told regulators last year it would stop holding financial reserves as a buffer against a large ruling, but it could sell assets in Mozambique, Brazil and elsewhere for a combined $18 billion, analysts with Tudor Pickering Holt & Co. wrote last month.
The Tudor Pickering analysts wrote Tuesday they expect Gropper to issue a final ruling by the end of the first quarter, but that they have baked in a $14 billion liability into its current view of Anadarko’s net asset value “until greater clarity can be gained on a settlement.”
Anadarko shares rose 2.5 percent to $80.86 on the New York Stock Exchange on Tuesday.