Anadarko, Tronox trial halted for settlement talks

NEW YORK Thu Jul 12, 2012 4:39pm EDT

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NEW YORK (Reuters) - The trial between oil and gas producer Anadarko Petroleum (APC.N) and paint materials company Tronox Inc (TROX.N) has been adjourned for one week so the two companies can try to hammer out a settlement of their $25 billion dispute, according to a court filing.

The news lifted shares of both companies with Anadarko climbing as much as 4.2 percent before easing to close at $68.12, up 2.3 percent. Tronox shares rose about 4.1 percent to $109.46.

The two companies are locked in a battle in New York bankruptcy court over environmental liabilities related to the spinoff of Tronox from Kerr-McGee Corp, which was purchased by Anadarko.

Tronox, which filed for bankruptcy in 2009, makes titanium dioxide used in paints and has argued its spinoff was fraudulent because of environmental liabilities that made the company insolvent.

It has said Anadarko should pay for environmental clean-up at more than 2,000 polluted sites in the United States. It is seeking $15 billion in assets and $10 billion in interest payments from Anadarko.

Tronox emerged from bankruptcy in February 2011 after a battle among creditors over payouts, and new Tronox shares now trade on the New York Stock Exchange.

The litigation trust, which has been joined by U.S. Department of Justice and the Environmental Protection Agency in the case, represents current and future claimants against the estate for environmental and other liabilities, including more than 8,000 tort claims.

Analysts have said a resolution to the case would allow Anadarko shares to recover losses suffered in recent weeks. The company has so far set aside $525 million in reserves, though a settlement could reach $2.5 billion.

An Anadarko spokesman declined to comment on the negotiations, and the trustee for the Tronox litigation trust did not immediately respond to a request to comment.

Mark Hanson, an equity analyst at Morningstar, said the Tronox litigation could ultimately settle and that it could cost Anadarko about $1 to $2 a share, while Oppenheimer & Co's Fadel Gheit put the cost as high as $2.40 per share.

During the trial, Tronox's valuation expert argued that Tronox was more than $1 billion short of funds when the IPO took place in November 2005. Anadarko lawyers disputed that, arguing that the company had received a take-over offer of $1.3 billion just days before the IPO.

The case is one of a handful of large so-called fraudulent conveyance cases in bankruptcy court in the past few years, such as in the bankruptcy of Lyondell Chemical when creditors argued against the legality of the leveraged buyout that created the company's debt load.

Anadarko argues there was no fraud, and that the company's problems were due to the housing market collapse and stricter lending that made it impossible to refinance its debt.

Last month, at a Citigroup energy conference, Anadarko Chief Executive Al Walker said the company tried unsuccessfully to have settlement talks, and hoped that talks could occur as the case unfolded.

The trial, which is being heard by Judge Allan Gropper without a jury, has been in session sporadically. It is expected to run through the end of August.

Anadarko is scheduled to begin presenting witnesses on July 17. Potential witnesses include Leroy Richie, a former general counsel at Chrysler Corp and a Kerr-McGee board member, and Joseph Flake, a vice president in the Kerr-McGee chemical business that became Tronox.

Former Kerr-McGee CEO Luke Corbett and Chief Financial Officer Robert Wohleber, and James Haddock, a former mayor of Avoca, Pennsylvania, the site of a shuttered Kerr-McGee chemical plant that had to be remediated, already testified.

Haddock said in court that he trusted Kerr-McGee in the early days, and that it was a good corporate citizen. But later, they started misleading him.

"I became a believer that something wasn't right," he said. He was part of a group of residents that settled with Kerr-McGee over alleged exposure to carcinogens.

(Additional reporting by Matt Daily and Tanya Agrawal in Bangalore; Editing by Bernard Orr)

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