Even though the potential liability ran as high as $25 billion, the settlement agreement reached between the U.S. government and Anadarko Petroleum (APC) for $5.15 billion is still a record for environmental contamination cases. It's a big win for Tronox (TROX 5.87%), too, even though it won't receive any of the proceeds. Considering the alternative was likely another bankruptcy filing for the world's largest fully integrated titanium dioxide producer, as the saying goes, any day above ground is a good day.

Tronox' abandoned Rare Earths Facility, West Chicago. Source: Wikimedia Commons

The case goes back decades involving the former Kerr-McGee, an energy company whose facilities included uranium mines, wood treatment facilities, and chemical manufacturing plants. It was the death of one of its employees, union activist Karen Silkwood, that focused particular notoriety on the energy outfit, as she died under uncertain circumstances following very public congressional testimony about her concerns in the early 1970s.

While the subsequent settlement of that case had no bearing on the Anadarko case, it became part of the liability issues that would surround Kerr-McGee. Between 2002 and 2005, the energy company separated its operations, transferring its profitable petroleum to the new business, and saddling what would become Tronox when it was spun off in 2006 with all the environmental liabilities that it had accrued. Kerr-McGee then sold itself as a "clean" petroleum company to Anadarko for $21 billion.

When the economy crashed a couple of years later, Tronox was plunged into bankruptcy, but it sued Anadarko, claiming Kerr-McGee knowingly didn't set aside enough money for its environmental liabilities because it knew the TiO2 business wouldn't survive long enough to pay them. Tronox emerged from bankruptcy in 2011 and established a trust to pay the environmental claims pressed against it by more than 2,700 polluted sites. The EPA eventually joined in looking to recover $25 billion, though the bankruptcy court judge set a range of liability between $5.15 billion and $14.2 billion, plus attorneys fees.

Today, Tronox is a stronger company than the one that went bankrupt, and it's diversified itself through acquisitions such as the mineral sands division of Exxaro Resources, the world's third-largest producer of titanium ore feedstock and the second-largest producer of zircon.

The case against Anadarko took a major turn last December when a court agreed Kerr-McGee had fraudulently conveyed its assets, and held it and Anadarko liable for the cleanup of the contaminated sites. These included a former Henderson, Nev. manufacturing site that polluted Lake Mead, 50 abandoned uranium mine sites on Navajo nation land in Arizona and New Mexico, and a Superfund site in Mississippi.

It's also a big turn from what Anadarko thought two years ago when it confidently stated in SEC filings that it thought its exposure would be, at most, $250 million. Now, it's looking to put the case behind it and move on from this period of "uncertainty," though it's only set aside some $850 million to cover its liability. Still, its shares soared 15% when the settlement was announced because it represented the removal of a huge overhang from the stock.

Source: Tronox

Tronox also got a boost, but hardly of the magnitude enjoyed by Anadarko. Titanium dioxide, the whitest substance on Earth, remains its key production, but it has experienced revenue shortfalls of late as pricing has weakened considerably. In the fourth quarter, revenues tumbled 22%, even though sales volumes were flat because of the lower pricing it got on its mineral sands.

Even if it's a record fine, Anadarko Petroleum emerges stronger than it otherwise might have, though we're left to hope the funds will be enough to actually clean up the contaminated sites. Tronox is also better off as a result of the deal, though nowhere near its antagonist. It has no recourse to the funds, but does get tax credits for its legal bills, so it does end up deriving substantial value from the settlement. In the end, a rather black history gets whitewashed.