Anadarko Petroleum Corp. (APC:US) and its Kerr-McGee unit failed to settle a $25 billion lawsuit brought by the U.S. and Tronox Inc. and a trial will resume next week, a lawyer said. Anadarko fell as much as 5.2 percent.
“There is no settlement agreement and we’re going to be resuming trial” on July 24, John Hueston, a lawyer for the U.S. and Tronox said today in a phone interview. Hueston declined to comment on whether further settlement talks were possible, or potential amounts discussed in the talks, which have been going on since at least July 12.
Anadarko remains “committed to resolving the Tronox litigation through informal negotiations or other alternative dispute resolution mechanisms,” John Christiansen, a company spokesman, said in an e-mailed statement. He said that the trial is set to resume July 24, as previously scheduled, and declined to comment on the status of the negotiations, saying they are confidential.
The lawsuit, over environmental claims and tort claims related to Tronox’s 2005 spinoff, tests whether money can be recovered from a successor to a polluting company, even after a bankruptcy ostensibly cleaned the slate. Tronox initially sued Anadarko in 2009. The Justice Department took over the case on behalf of the Environmental Protection Agency.
Anadarko, based in The Woodlands, Texas, fell 1.2 percent to $71.78 at 1:28 p.m. in New York Stock Exchange composite trading. The shares earlier touched $68.86.
The government seeks to recover $25 billion to clean up 2,772 polluted sites and compensate about 8,100 tort claimants.
A trial began May 15, with Anadarko facing testimony from more than 50 witnesses, and was scheduled to run until at least the end of July. On June 28, David Zott, a lawyer for the U.S. and Tronox, said the plaintiffs had presented their last witness, and U.S. Bankruptcy Judge Allan Gropper asked Anadarko how it would begin its defense.
Before Anadarko could present its side of the case, a notice was filed July 12 saying the trial was being adjourned for a week while the parties held settlement talks or engaged in mediation. The talks would be confidential, according to the notice. Anadarko shares rose as much as 4.3 percent that day.
“Until clarity is established, we believe APC shares could show some weakness,” Scott Hanold, an RBC Capital Markets LLC analyst, said in a research note today. “Until the news broke out, the stock price had been discounting a settlement for approximately $4+ billion, expected to be a more favorable outcome than a trial judgment.”
The government seeks $15 billion in assets allegedly transferred in 2005, plus $10 billion in interest and appreciation, according to a lawyer involved in the case.
Witnesses who testified included bankers, scientists and a mayor who said Kerr-McGee’s toxins destroyed his town, as well as Luke Corbett, the Kerr-McGee chief executive officer from 1997 to 2006, who now sits on Anadarko’s board.
According to the complaint, Anadarko’s Kerr-McGee unit was part of a two-step transaction that defrauded the EPA of money to clean polluted sites.
Kerr-McGee, founded in 1929 near Oklahoma City, left a toxic legacy that stretches from uranium mines in Navajo territories in the West to wood-treatment plants in Mississippi and Pennsylvania, the EPA said in court papers.
After an internal reorganization started in 2001, Kerr- McGee spun off its chemicals business and old environmental liabilities as Tronox Inc. beginning in 2005. About three months after the transaction was completed, Anadarko offered to buy Kerr-McGee’s oil and natural gas assets for $18 billion.
Tronox filed for bankruptcy in 2009 and sued its former parent, saying it was overburdened with billions of dollars in environmental debts. The U.S., Tronox’s largest creditor on behalf of the EPA, intervened, creating the current lawsuit.
Anadarko said Kerr-McGee reorganized to separate the chemical business from the oil and gas business and maximize shareholder value.
“All relevant parties believed that both businesses were healthy,” lawyers for Anadarko wrote in court papers.
Anadarko Chief Executive Officer Al Walker said at an energy conference on June 6 that the company wasn’t opposed to a settlement.
The bankruptcy case is Tronox Inc., 09-10156, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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