Record $5B Anadarko Cleanup Deal Clears Final Hurdle

A record $5.2 billion nuclear pollution cleanup deal cleared a final hurdle Monday when Anadarko Petroleum Corp. won a New York federal judge’s approval despite objections the oil company was being let off easy.

U.S. District Judge Katherine B. Forrest green-lighted a settlement resolving a lawsuit brought by creditors of Tronox Inc., a paint materials maker and onetime Kerr-McGee Corp. unit that was spun off when Kerr-McGee was picked up by Anadarko. The suit claimed the parent companies had forced the unit into bankruptcy by saddling it with environmental liabilities, according to the decision Monday.

The deal got the nod from U.S. Bankruptcy Judge Allan L. Gropper despite concerns from individuals who fear the deal will bar them from bringing future tort claims. Judge Gropper in May lauded the parties’ willingness to come together to end the dispute.

Judge Forrest wrote in Monday’s ruling that the portion of the funds going toward environmental cleanup — some $4.4 billion — is “about $4 billion greater than what plaintiffs might recover if they pursued the damages phase of this litigation to its conclusion.”

“The court is sympathetic to the objectors, whose community is coping with the toxic legacy Kerr-McGee has left in its wake,” Judge Forrest wrote Monday. “Nevertheless, the court must consider the broad interests of all of the parties affected by this litigation, not simply the narrow interests of the objectors.”

The massive lawsuit stems from the 2005-2006 initial public offering and spinoff of Oklahoma City-based pigment maker Tronox from Kerr-McGee before that company went to Anadarko in a nearly $19 billion deal.

The litigation trust claimed that Anadarko had looked into acquiring Kerr-McGee in 2002, balked at the idea of taking on billions of dollars in legacy costs and then conspired with Kerr-McGee to structure a spinoff that could dump the liabilities onto Tronox and keep the valuable oil and gas assets for itself.

Judge Gropper in a scathing December ruling found that Tronox’ previous parent, Kerr-McGee, had saddled it with environmental liabilities and stripped its healthy assets before spinning it off.

But the judge said the settlement provides those potential future claimants an opportunity to be paid out through a $600 million trust if they meet certain qualifications. Moreover, he said, refusing to approve the deal would only delay the cleanup efforts in areas such as Columbus, Mississippi, that were affected.

The deal resolves all claims against Kerr-McGee and gives Anadarko contribution protection from third-party claims seeking reimbursement from more than 4,000 sites covered by the settlement. Judge Gropper said in his December decision that Anadarko could be liable for up to $14.1 billion in damages, and the Tronox trust later argued in court papers that it was entitled to $20.8 billion.

The $5.15 billion settlement is the largest sum for environmental contamination cleanup in the history of the U.S. Department of Justice, federal prosecutors who supported the agreement said. More than $4.4 billion of the deal will cover environmental remediation and settle pollution claims across the country, while the rest will be put toward personal injury claims.

The funds include money for the Navajo Nation to finance the cleanup of radioactive contamination from Kerr-McGee’s uranium mining operation in New Mexico, according to court documents.

Representatives for the parties didn’t immediately respond to requests for comment after business hours on Monday.

The Tronox trust is represented by the litigation trustee, John Hueston of Irell & Manella LLP and David Zott, Andrew Kassof and Jeffrey Zeiger of Kirkland & Ellis LLP.

Anadarko and the Kerr-McGee defendants are represented by Melanie Gray, Lydia Protopapas and Jason W. Billeck of Winston & Strawn LLP, Gregory Silbert of Weil Gotshal & Manges LLP, Sabin Willett, Thomas R. Lotterman and James J. Dragna of Bingham McCutchen LLP, and Kenneth N. Klee and David M. Stern of Klee Tuchin Bogdanoff & Stern LLP.

The case is Tronox Inc. v. Kerr McGee Corp. et al., case number 1:09-ap-01198, in the U.S. Bankruptcy Court for the Southern District of New York. The bankruptcy is In re: Tronox Inc. et al., case number 1:09-bk-10156, in the same court.

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