Andarko Petroleum Settles Tronox Claims For $5.15 Billion

Andarko Petroleum Settles Tronox Claims For $5.15 Billion

Andarko Petroleum Corporation (NYSE:APC) revealed in a press release today that it has agreed on settlement terms in connection with the Tronox Adversary Proceeding. Under the terms of that agreement, all claims against Kerr-McGee Corporation and some of its subsidiaries and affiliates will be resolved. Andarko Petroleum acquired Kerr-McGee in 2006.

Andarko to pay $5.15 billion to plaintiffs

According to Andarko Petroleum Corporation (NYSE:APC) management, the proceeds from the settlement will pay for the “remediation and cleanup of the legacy environmental liabilities and tort claims.” Under the agreement, both Kerr-McGee and the Litigation Trust will release all claims against each other. Also Kerr-McGee and the U.S. government have officially agreed not to sue each other. The government also agreed to provide “contribution protection” from third parties which are seeking to be reimbursed by Kerr-McGee from any of the over 4,000 sites which are covered under the agreement.

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In exchange for the release of all the claims against Kerr-McGee, Andarko Petroleum will pay a total of $5.15 billion to the plaintiffs in the case. That includes a principal amount of $3.98 billion plus 6% interest from the time the complaint was filed in May 2009.

Agreement must be approved

The U.S. Bankruptcy Court and the U.S. District Court both must approve the settlement before it will be finalized. Andarko Petroleum Corporation (NYSE:APC) believes the Tronox Adversary Proceeding will be stayed until the agreement receives the final approval. The company will make the settlement payment after the district court approves the agreement and after the issuance of the injunction is final and can’t be appealed.

Under the terms of the settlement, the Tronox Adversary Proceeding will be dismissed with prejudice after Andarko Petroleum Corporation (NYSE:APC) makes the final settlement payment. The company expects the process to be completed before the end of the third quarter of this year. Andarko said its cash position and available $5 billion credit facility offer flexibility in funding the payment.

Andarko now focuses on results

Andarko Petroleum Corporation (NYSE:APC) expects the impact of the settlement will be reflected in the financial statements for the first quarter. The company estimates that it will see a gross tax benefit of about $1.65 billion in connection with the settlement. That will be offset by about $1.1 billion in “uncertain tax positions,” which will likely result in a net tax benefit of about $550 million. Management is now shifting the focus away from the litigation and toward the company’s fundamentals.

“As we highlighted during our recent investor conference, Anadarko’s employees have continued to deliver remarkable results that have not been fully recognized by the equity markets due to the potential implications of this case,” said Chairman, President and CEO Al Walker in a statement. “Together with our efficient allocation of capital and active portfolio management, the company’s industry-leading exploration success and strong, transparent, and sustainable growth metrics uniquely position Anadarko amongst its peers. We look forward to having our exceptional results become the foundation for even greater operating and share-price performance through the balance of this decade and beyond,” added Walker.

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