Anadarko settles legacy claims against Kerr-McGee for $5.15 billion

Anadarko Petroleum Corp. and subsidiaries it acquired when it bought Kerr-McGee Corp. in 2006 agreed to pay $5.15 billion to settle fraudulent conveyance allegations brought by the US government and co-plaintiff Anadarko Litigation Trust in the bankruptcy of Tronox Inc.

A federal bankruptcy court found in December 2013 that Kerr-McGee conveyed its oil and gas assets to a new entity with the same name and renamed the remaining holdings Tronox in an attempt to evade debts, including its environmental liability to clean up contaminated sites around the country, US Department of Justice and Environmental Protection Agency officials jointly announced on Apr. 3.

They reported that of the settlement amount Anadarko has agreed to pay, $4.4 billion will be used for environmental cleanups and to settle environmental claims. It is the largest environmental enforcement recovery in DOJ history, the federal department said.

“This settlement agreement with the Litigation Trust and the US 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,” Anadarko Chief Executive Al Walker separately said.

Evasive move

In his Dec. 12, 2013, opinion, Judge Allan J. Gropper of US Bankruptcy Court for New York’s Southern District agreed with the government and litigation trust’s charges that Kerr-McGee transferred out and spun off its oil and gas assets in 2005 to a newly formed entity with the same name to evade creditors and environmental liabilities.

Although it had been founded in 1929 as an oil and gas exploration and production operation, Kerr-McGee diversified into refining and marketing, uranium mining and processing, wood treatment, and manufacturing and use of chemicals including creosote and ammonium perchlorate. By the early 2000s, the Oklahoma City-based independent had discontinued all but its chemical and E&P operations but still was responsible for environmental, tort, workers’ compensation, and retiree and employee benefit liabilities related to the other businesses.

In 2001, Kerr-McGee began an internal reorganization, Project Focus, to separate its oil and gas business from its chemical business and legacy liabilities, according to Cropper. When it was unable to sell the chemical operations, the company decided to move it into a new entity, Tronox, which also assumed the legacy liabilities, in 2005. It was spun off a year later from Kerr-McGee, which Anadarko bought for $18 billion soon after.

Burdened by environmental and other legacy liabilities, Tronox sought Chapter 11 bankruptcy protection in New York’s Southern District in January 2009 and sued the defendants. It emerged from bankruptcy on Feb. 14, 2011, when the court confirmed its reorganization plan that included a settlement with various environmental regulators for $270 million and 88% of any net proceeds from the fraudulent conveyance litigation.

At the same time, Tronox established a litigation trust to pursue the action after its emergence from bankruptcy and to distribute any recoveries from the litigation to the trust’s environmental and tort beneficiaries. The US government intervened in the case under the Federal Debt Collection Procedures Act to recover response costs for environmental cleanups at numerous sites around the country.

Settlement’s terms

Under the Apr. 3 settlement, which must go through a 30-day public comment and judicial review period before it becomes final, Anadarko and the subsidiaries will pay the settlement amount to the trust, DOJ said.

It said that under a 2011 agreement between the US government; certain state, local, and tribal governments; and the bankruptcy estate, the trust will distribute 88% of the litigation’s net proceeds to the US, certain state governments, the Navajo Nation, and environmental trusts created to clean up the contaminated sites. The 2011 agreement specifies percentages of the funding that will be made available to each site.

DOJ said as a result of these agreements, some of the key recoveries for environmental claims and for waste site cleanups will include an estimated:

• $1.1 billion to be paid to a trust charged with cleaning up two dozen contaminated sites around the country, including the Kerr-McGee Superfund Site in Columbus, Miss.

• $1.1 billion to be paid to a trust responsible for cleaning up a former chemical manufacturing site in Nevada that has led to contamination of Lake Mead.

• $985 million to be paid to EPA for clean-up of 50 abandoned uranium mines in and around the Navajo Nation, where radioactive waste remains from Kerr-McGee mining operations. The Navajo tribe also will receive more than $43 million to address radioactive waste left at the former Kerr-McGee uranium mill in Shiprock, NM, DOJ said.

• $224 million to be paid to EPA for clean-up of thorium contamination at the Welsbach Superfund Site in Gloucester, NJ.

• $217 million to be paid to the federal Superfund in repayment of costs previously incurred by EPA’s clean-up of the Federal Creosote Superfund Site in Manville, NJ.

Additional amounts will be paid to the US government, state governments, Navajo Nation, and environmental trusts for other environmental claims and contaminated sites, DOJ said.

Anadarko said in exchange for the payment, the litigation trust and Kerr-McGee have agreed to mutually release claims against each other, and the US government and Kerr-McGee have provided mutual covenants not to sue. The federal government also will provide contribution protection from third-party claims seeking reimbursement from Kerr-McGee at more than 4,000 sites covered by the covenants, it added.

The claims asserted in the Tronox adversary proceeding will be dismissed with prejudice after the settlement payment is made, Anadarko said. It expects the process to be completed before the end of 2014’s third quarter, and believes its significant cash position and available $5 billion credit facility provide flexibility in funding the settlement payment.

Anadarko said it expects the settlement agreement’s impact to be reflected in its financial results for 2014’s first quarter. It estimated it would record a gross tax benefit of $1.65 billion associated with the settlement, offset by $1.10 billion in uncertain tax positions, which would result in an $550 million net tax benefit.

Contact Nick Snow at nicks@pennwell.com.

Related Articles

API to issue recommended practice to address pipeline safety

07/01/2015 The American Petroleum Institute expects to issue a new recommended practice in another few weeks that addresses pipeline safety issues, but the tr...

Shell Midstream Partners takes interest in Poseidon oil pipeline

07/01/2015 Shell Midstream Partners LP has completed its acquisition of 36% equity interest in Poseidon Oil Pipeline Co. LLC from Equilon Enterprises LLC, a s...

MARKET WATCH: Oil prices decline as US crude inventories post first gain in 9 weeks

07/01/2015 Oil prices on July 1 surrendered much of their gains from the day before after the release of a government report showing the first rise in US crud...

FWS issues Shell letter of authorization on Chukchi Sea lease

07/01/2015 The US Fish & Wildlife Service issued Shell Gulf of Mexico Inc. a letter of authorization (LOA) related to the potential disturbance of polar b...

USGS: Water usage for fracturing varies widely across shale plays

07/01/2015 The volume of water required to hydraulically fracture wells varies widely across the country, according to the first national analysis and map of ...

Case for Keystone XL has grown stronger, TransCanada tells Kerry

06/30/2015 Canada is taking strong steps toward combating climate change, and the proposed Keystone XL pipeline crude oil pipeline remains in the US national ...

Forum extends study of subsea integrity

06/30/2015

Work by an industry forum called SURF IM Network, which studies oil and gas subsea integrity management, has been extended by 3 years.

Survey begins of collaboration on the UKCS

06/30/2015

Deloitte has begun a survey about collaboration in the oil and gas producing industry of the UK Continental Shelf.

Lytle named to Canada’s National Energy Board

06/30/2015

Murray Lytle has been appointed as a full-time member of Canada’s National Energy Board for a term of 7 years, effective July 6.

White Papers

UAS Integration for Infrastructure: More than Just Flying

Oil and gas companies recognize the benefits that the use of drones or unmanned aerial systems (UAS) c...

Solutions to Financial Distress Resulting from a Weak Oil and Gas Price Environment

The oil and gas industry is in the midst of a prolonged worldwide downturn in commodity prices. While ...
Sponsored by

2015 Global Engineering Information Management Solutions Competitive Strategy Innovation and Leadership Award

The Frost & Sullivan Best Practices Awards recognise companies in a variety of regional and global...
Sponsored by

Three Tips to Improve Safety in the Oil Field

Working oil fields will always be tough work with inherent risks. There’s no getting around that. Ther...
Sponsored by

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by
Available Webcasts


The Resilient Oilfield in the Internet of Things World

When Tue, Sep 22, 2015

As we hear about the hype surrounding the Internet of Things, the oil and gas industry is questioning what is different than what is already being done. What is new?  Using sensors and connecting devices is nothing new to our mode of business and in many ways the industry exemplifies many principles of an industrial internet of things. How does the Internet of Things impact the oil and gas industry?

Prolific instrumentation and automation digitized the industry and has changed the approach to business models calling for a systems led approach.  Resilient Systems have the ability to adapt to changing circumstances while maintaining their central purpose.  A resilient system, such as Maximo, allows an asset intensive organization to leverage connected devices by merging real-time asset information with other critical asset information and using that information to create a more agile organization.  

Join this webcast, sponsored by IBM, to learn how about Internet of Things capabilities and resilient systems are impacting the landscape of the oil and gas industry.

register:WEBCAST



On Demand

Taking the Headache out of Fuel License and Exemption Certificates: How to Ensure Compliance

Tue, Aug 25, 2015

This webinar, brought to you by Avalara, will detail the challenges of tax document management, as well as recommend solutions for fuel suppliers. You will learn:

-    Why it’s critical to track business partner licenses and exemption documents
-    The four key business challenges of ensuring tax compliance through document management
-    Best practice business processes to minimize exposure to tax errors

register:WEBCAST


Driving Growth and Efficiency with Deep Insights into Operational Data

Wed, Aug 19, 2015

Capitalizing on today’s momentum in Oil & Gas requires operational excellence based on a clear view of what your business data is telling you. Which is why nearly half* of oil and gas companies have deployed SAP HANA or have it on their roadmap.

Join SAP and Red Hat to learn more about using data to drive process improvements and identify new opportunities with the SAP HANA platform running on Red Hat Enterprise Linux. This webinar will also show how your choice of infrastructure impacts the performance of core business applications and your ability to achieve data-driven insights quickly and reliably.

*48% use SAP, http://go.sap.com/solution/industry/oil-gas.html

register:WEBCAST


OGJ's Midyear Forecast 2015

Fri, Jul 10, 2015

This webcast is to be presented by OGJ Editor Bob Tippee and Senior Economic Editor Conglin Xu.  They will summarize the Midyear Forecast projections in key categories, note important changes from January’s forecasts, and examine reasons for the adjustments.

register:WEBCAST


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected