HOUSTON, TX -- (Marketwired) -- 01/13/14 -- Anadarko Petroleum Corporation (NYSE: APC) announced that Kerr-McGee Corporation (Kerr-McGee), a wholly owned subsidiary, in response to the instructions of the Court in the Tronox Adversary Proceeding, today filed a claim under Section 502(h) of the U.S. Bankruptcy Code and a supporting brief regarding certain issues related to the amount of Kerr-McGee's claim and how the Court should treat that claim, which will be offset against an award of damages by the Court. Kerr-McGee asserted in today's filing that the Court should not dilute Kerr-McGee's claim because diluting the claim is not allowed under Tronox's Confirmed Plan of Reorganization (the Plan) and is also not allowed under applicable principles of law. Additionally, Kerr-McGee asserted that the Court in its provisional findings has not properly considered the amount of Kerr-McGee's offset claim, nor the related percentage of recovery applied to such claim.
"We believe the Court's approach in its provisional findings, as applied, leads to incorrect conclusions for the calculation of damages and is contrary to the Court's stated view that the purpose of the applicable law is 'remedial rather than punitive,'" said Anadarko Chairman, President and CEO Al Walker. "Today's filing is in direct response and in deference to the Court's instructions and thus is limited in scope to the appropriate amount of Kerr-McGee's offset to any award of damages. As previously stated, we respect the Court, though we strongly disagree with its Memorandum of Opinion (Opinion) issued on Dec. 12, 2013, and we continue to reserve all of our objections to the Opinion and our right to appeal."
Amount of Offset Claim
In summary, the Court's Opinion suggested that the calculation of Kerr-McGee's offset claim should be (i) the value of the transferred assets as of Nov. 28, 2005, which was the date of Tronox's Initial Public Offering (IPO), at $14.459 billion, less (ii) the environmental and tort liabilities. The Court used plaintiffs' 2010 post-petition unproven $4 billion estimate to account for the amount of environmental and tort liabilities. Using this calculation, Kerr-McGee's offset claim would be limited to $10.459 billion.
In today's brief, Kerr-McGee utilized the Court's framework for calculating its claim and argued that the Court should use its own specific finding of $1.757 billion stated in the Opinion to define the amount of the environmental and tort liabilities as of the date of the IPO in 2005 (as opposed to the $4 billion estimate referenced above). In its Opinion, the Court also found that after netting all of Tronox's available assets with all of its liabilities, including the $1.757 billion of environmental and tort liabilities at the time of the IPO, there was a creditor shortfall of $850 million.
The Court also suggested in its Opinion that the percentage of recovery to be applied to the claim could be either 89 percent or 2.8 percent. The Court's explanation for suggesting 89 percent is that the Disclosure Statement estimated recovery for Unsecured Class 3 Creditors to be between 78 percent and 100 percent, and the Court selected the midpoint of that range, or 89 percent. In its Opinion, the Court also noted that the issue of whether to add back Kerr-McGee's offset claim to Class 3 was left open. Inclusion of Kerr-McGee's claim in Class 3 would result in dilution of Kerr-McGee's claim by more than 97 percent (i.e., a multiplier of 2.8 percent).
In today's brief, Kerr-McGee argued that the percentage recovery applicable to Kerr-McGee's offset claim should be determined by the plain language in the Plan. Based upon that language, Kerr-McGee is entitled to the same percentage recovery that the Class 3 general unsecured creditors actually received in the bankruptcy, which was well over 100 percent. The brief contends that, at the very least, Kerr-McGee is entitled to 100 percent of its claim. Kerr-McGee asserted that reducing the amount of its claim to anything less than 100 percent would be contrary to the Plan and would violate fundamental bankruptcy and equitable principles.
In its filing today, Kerr-McGee has applied the Court's own findings as to the amount of the environmental and tort liabilities and has applied the Court's formulation for determining the claim, as provided in page 143 of the Court's Dec. 12, 2013 Opinion: "In this case, if the parties are to be restored to the position they held before the transfers, Defendants would be entitled to the residual value of the E&P assets after their debts, including the legacy liabilities, were paid in full."
Using the Court's prescribed framework, Kerr-McGee argued that its offset is $13.609 billion, resulting in net damages of $850 million. Alternatively, if the Court rejects the $13.609 billion amount, Kerr-McGee asserted that its offset should be $12.702 billion, resulting in net damages of $1.757 billion. These net amounts do not include any amounts plaintiffs may assert for interest, attorneys' fees or other costs. The plaintiffs also previously received substantial other assets and approximately $270 million in cash in partial satisfaction of their claims through the bankruptcy, the value of which is not included in the net amounts above.
According to the Court's instructions, the plaintiffs have 30 days from today to file a response to the 502(h) claim and brief, to file a request for attorneys' fees and to file a proposed form of judgment. Kerr-McGee will then have 30 days to reply to the plaintiffs' brief and propose a counter-form of judgment. Either party can request a hearing on the issues. The Tronox Adversary Proceeding is pending in the U.S. Bankruptcy Court for the Southern District of New York, Adv. Pro. No. 09-01198 (ALG). A copy of Kerr-McGee's 502(h) claim and the supporting brief it filed today can be found under the APC Flash Feed on our website at www.anadarko.com.
This news release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Anadarko believes that its expectations are based on reasonable assumptions. No assurance, however, can be given that such expectations will prove to have been correct. A number of factors could cause actual results to differ materially from the projections, anticipated results or other expectations expressed in this news release, including the nature and timing of a final judgment or other decisions rendered relating to the Tronox Adversary Proceeding, the amount of damages, interest, attorneys' fees and other costs for which the defendants may be found liable, and the effect of such amounts on our business, prospects, results of operations, financial condition and liquidity. See "Risk Factors" in the company's 2012 Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other public filings and press releases. Anadarko undertakes no obligation to publicly update or revise any forward-looking statements.