$5 billion settlement clears way for Anadarko to grow globally - if it isn't bought first

The $5 billion settlement of a long- running pollution case will free Anadarko Petroleum Corp. to rival the world’s biggest energy companies and pursue global ambitions from Mozambique to the Gulf of Mexico.

That is: if they don’t get bought first.

Built for a potential sale by former Chief Executive Officer James Hackett, a renowned deal maker, Anadarko may have outgrown all but a few possible suitors. Two major legal cases in the past five years involving toxic pollution have kept buyers and investors away. With yesterday’s agreement resolving the last of its liability, the question now is whether Anadarko will continue growing, or become the latest “independent” to be swallowed by Big Oil.

“This is a company that people have been thinking the majors would buy for a long time now, but I don’t think they’re in a buying mood,” said Tim Beranek, a money manager at Cambiar Investors LLC, which owns nearly 2 million shares. Anadarko will be able to grow faster than many people expect, he said. “They have a rich portfolio and there’s a lot that they can do.”

Anadarko shares soared 15 percent to an all-time high after it agreed with the U.S. Justice Department to pay $5.15 billion to clean up 85 years worth of pollution left behind by its Kerr-McGee unit. An estimated $4.4 billion from the settlement, the government’s largest recovery ever for environmental cleanup, will be spent on contamination that stretches from Western uranium mines in Navajo territories to wood-treatment plants in Mississippi and Pennsylvania. The rest will go to injury claims, according to court documents.

Fresh Attention

“Investor focus can now return to the tremendous value embedded in Anadarko’s asset base, allowing our peer-leading operational and exploration results to again become the basis for valuation,” said Chairman and Chief Executive Officer Al Walker in a statement yesterday.

Anadarko rose 2.2 percent to $101.15 at 8:57 a.m. in New York, an all-time high, after the average price target of 28 analysts rose to $108.75, according to data compiled by Bloomberg. The company’s market value rose to $50.7 billion based on its $99.02 close yesterday in New York.

Before this settlement, Anadarko had also been weighed down by liability from the 2010 Deepwater Horizon spill in the Gulf of Mexico for its 25 percent stake in BP Plc’s Macondo well. The well spewed more than 4 million barrels of oil into the Gulf of Mexico after a blowout in 2010, closing fisheries and tainting shorelines from Texas to Florida. The company paid BP $4 billion to resolve its share of liability for private-party lawsuits related to the spill. The settlement didn’t cover any fines from the U.S. government.

Remaking Anadarko

Former CEO Hackett remade Anadarko after taking charge of the company in 2003, fresh from remaking and selling Ocean Energy Inc., where he’d also been CEO. Anadarko shares had declined 16 percent the previous year as the company missed financial targets. Hackett’s acquisitions of Kerr-McGee and Western Gas Resources in 2006 for a total $21 billion were at first panned by industry analysts, but helped triple Anadarko’s market value as oil prices rose over the next decade.

Hackett pursued exploration projects in Africa and the Gulf of Mexico that have helped boost production to 781,000 barrels a day of oil and natural gas, the fourth-highest of any U.S. energy company. Anadarko plans to grow sales by as much as 7 percent this year. It’s considered to be an “independent” oil and gas company because it focuses exclusively on exploration and production.

The global explorer has announced discoveries off the coast of Mozambique that may contain 70 trillion cubic feet of gas, enough to meet annual U.S. residential demand for 14 years.

Too Big

Anadarko may now be too big for buyers like Royal Dutch Shell Plc or ConocoPhillips that have promised shareholders big dividends, share buybacks or asset sales to increase value. Freed from its litigation liability, Anadarko can now spend more on growth and make better progress on finding additional partners to develop Mozambique, said Ted Harper, who helps manage more than $10 billion for Frost Investment Advisors LLC, including Anadarko shares.

“Hopefully now some of these discussions on deals can move forward,” he said. “Time will tell.”

Kelly op de Weegh, a spokeswoman for Shell, declined to comment. Daren Beaudo, a spokesman for ConocoPhillips, didn’t immediately respond to a request for comment after usual business hours.

Shedding Responsibility

The U.S. lawsuit centered on whether Anadarko should have to pay for the environmental damages wrought by Kerr-McGee, which in 2005 had spun off its chemicals business and environmental liabilities just months before being acquired.

Kerr-McGee “tried to shed its responsibility for this environmental damage and stick the United States taxpayers with the huge cleanup bill,” Deputy Attorney General James Cole said yesterday at a news conference in Washington.

Anadarko will record the impact of the settlement in its first quarter financial statements, including a $550 million net tax benefit, according to the company.