Anadarko Petroleum: The Never Ending Story

One month ago, a bankruptcy judge determined that Anadarko Petroleum (APC) had fraudulently spun out Tronox before the latter’s bankruptcy and ruled that Anadarko should be liable for between $5 billion and $14 billion in damages. Last night, Anadarko offered its rebuttal.

Agence France-Presse/Getty Images

Reuters has the details on Anadarko’s response:

Anadarko Petroleum Corp said it should pay as little as $850 million in damages over the 2005 spinoff of paint materials company Tronox Inc, 94 percent below the maximum amount a federal bankruptcy judge said it might owe.

The estimate was provided on Monday, one month after U.S. Bankruptcy Judge Allan Gropper in Manhattan said a higher payout of $14.17 billion might be in order because Anadarko’s Kerr-McGee Corp unit intended to harm Tronox creditors by saddling the spinoff with unsustainable environmental liabilities.

Morgan Stanley’s Evan Calio and team make some observations:

We believe the key element of the memo relates to the consideration of the "dilutive effects" of damages on APC's 502(h) claim, which drives the high-end of the Court's provisional damages ($14Bn). APC contests the Court's authority to make this determination and contends that the language of the reorganization plan specifies that they receive the same percentage as Class 3 claimants (78-100%) in their 502(h) claim…

APC contends that the $4Bn midpoint of legacy liabilities (environmental and tort) suggested in the Court's Opinion was the Plaintiffs' post-petition estimate and was never proven in trial. APC also points out that the amount contradicts the Court's own finding of fact where the NPV of the legacy liabilities on 11/28/05 was determined to be $1.757Bn (date of spin-off, the same date the E&P assets are valued on).

Shares of Anadarko have underperformed peers like EOG Resources (EOG),Noble Energy (NBL), Apache (APA) and Occidental Petroleum (OXY) during the past six months as the litigation risk held back the stock, and it looks like it’s going to take a while before its settled once and for all.

Shares of Anadarko have gained 3.1% to $80.78 today, while Noble Energy has risen 2% to $64.45, Occidental Petroleum has advanced 0.8% to $92.30, Apache has jumped 1.7% to $85.78 and EOG resources is up 3% at $168.42.