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Nov 27, 2014

Tronox, US Set To Face Off Against Anadarko In $25B Lawsuit

Published: May 14, 2012


By Patrick Fitzgerald
Of DOW JONES DAILY BANKRUPTCY REVIEW


Barring an 11th-hour settlement, creditors of Tronox Inc. (TROX) joined by the U.S. government will square off with Anadarko Petroleum Corp. (APC) and former Tronox parent Kerr-McGee Corp. in a $25 billion environmental lawsuit that seeks to assign blame for the chemical company's "toxic past."

Chemical maker Tronox sued Kerr-McGee Corp. in 2009 claiming that its former parent saddled it with massive environmental liabilities as part of a 2006 spinoff, setting the chemical company on a path to bankruptcy. Tronox, which makes titanium dioxide, the whitening pigment used in everything from paper to toothpaste, filed for Chapter 11 earlier in early 2009.

According to the suit, Kerr-McGee engaged in a plan to escape its "toxic past" by shifting its valuable oil and gas business to a "clean" Kerr-McGee and dumping 75 years of environmental liabilities on the remaining "carcass," namely Tronox.

Three months after jettisoning Tronox, the "clean" Kerr-McGee was bought by Houston oil company Anadarko Petroleum in a deal valued at $19 billion. Tronox, after filing for bankruptcy, sued Kerr-McGee and Anadarko over the spinoff for $25 billion, an amount that includes interest and appreciation

The deal represented a windfall to a number of Kerr-McGee executives, Tronox says, including the chief executive and "primary architect" of the spinoff, Luke Corbett. Corbett personally profited by more than $200 million from the sale, according to court papers.

In August of 2009, the U.S. filed claims against Tronox seeking to recoup environmental cleanup costs and other damages.

In 2010, the U.S. and Tronox settled. As part of the chemical company's plan to exit Chapter 11 Tronox created five environmental response trusts to handle the cleanup of more than 1,000 potentially contaminated sites.

Tronox, of Oklahoma City, emerged from Chapter 11 bankruptcy protection in February 2011. As part of its exit, the company's Chapter 11 plan created the Anadarko litigation trust to pursue Tronox's lawsuit against Anadarko and Kerr McGee. Tronox has transferred an 88% share of its interest in the lawsuit to the federal government.

Lawyers for Anadarko have long denied they set up Tronox to fail and have argued the company, its creditors and the government were attempting "to rewrite history."

Earlier this year, the trust agreed to dismiss some of its claims, namely its bid to claw back property transfers made by another Tronox subsidiary, a concession Anadarko says validates its argument. Lawyers for the trust, however, say the decision will have no bearing on the trial.

Lawyers for the Tronox trust and Anadarko couldn't be reached for comment.

Judge Allan Gropper of the U.S. Bankruptcy Court in New York is set to begin the trial Tuesday morning. Barring a deal, both sides expect the trial to last at least 30 days.

(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to http://dbr.dowjones.com)

-By Patrick Fitzgerald; 202-862-3544; patrick.fitzgerald@dowjones.com; Twitter: @WSJBankruptcy

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