Anardarko Stock Affected By $25 Billion Lawsuit

Anadarko Petroleum Corp. (APC) investors are discounting the company’s market value by $2 billion as analysts and lawyers see few ways to minimize the effect of a $25 billion lawsuit spawned by the toxic past of its Kerr-McGee Corp. unit.

The 2006 purchase of Kerr-McGee’s oil and gas assets, a key part of former Chief Executive Officer Jim Hackett’s legacy of expanding Anadarko, has left the company battling a lawsuit that’s put a cloud over its stock. Energy investors may want to look at buying shares in companies that don’t have the sort of litigation risk that Anadarko has, said Jeffrey Campbell, an analyst for Pritchard Capital Partners in New York.

“We cannot support jumping in front of the litigation bus when peer companies offer attractive upside without unquantifiable risk,” Campbell said in a May 22 note. At its June 7 closing price of $63.20, Anadarko’s stock is underperforming peers by about $4.16 a share, implying investors were pricing in about $2 billion for a possible settlement or penalty, according to Campbell’s estimate.

The suit, which went to trial May 15 in Manhattan Bankruptcy Court, contends The Woodlands, Texas-based Anadarko’s Kerr-McGee unit was part of a two-step transaction that defrauded the Environmental Protection Agency of the money to clean 2,772 polluted sites.

After an internal reorganization started in 2001, Kerr- McGee spun off its chemicals business and old environmental liabilities as Tronox Inc. (TROX) beginning in 2005. About three months after the transaction was completed, Anadarko offered to buy Kerr-McGee’s oil and gas assets for $18 billion.