Anadarko Seeks Dismissal of Investor Suit Over Gulf Spill

Anadarko Petroleum Corp., a partner in the BP Plc well that was the source of the largest U.S. offshore spill, asked a federal judge in Texas to throw out a lawsuit claiming the company misled investors over the project’s risks before and after the blowout.

Investors accused Anadarko, which held a 25 percent interest in BP’s Macondo well, of understating its role in the project and falsely claiming it faced minimal financial liability from the 2010 blowout off the Louisiana coast. The securities-fraud suit, filed as a class action, seeks recovery of billions of dollars of lost share value resulting from the spill.

Anadarko denies any false statements, before or after the spill, and disputes the investors’ claims that the company was involved in bad decisions made prior to the blowout or during attempts to cap the well. The company urged U.S. District Court Judge Keith P. Ellison at a hearing in Houston today to throw out the case.

“The plaintiffs are making an attempt to pound a square peg into events that do not constitute securities fraud,” Charles Schwartz, an attorney for Anadarko, argued.

The blast aboard the Deepwater Horizon drilling rig killed 11 workers and generated hundreds of lawsuits against BP; Vernier, Switzerland-based Transocean Ltd., owner of the Deepwater Horizon; and Houston-based Halliburton Co., which provided cementing services for the project.

Spill Claims

The lawsuits also named Anadarko and Mitsui & Co.’s MOEX Offshore 2007, which had a 10 percent share, as defendants. Anadarko agreed to pay BP $4 billion to settle its share of oil spill claims. MOEX settled for $1.07 billion.

The securities-fraud lawsuit against Anadarko and company executives was initially filed in 2010 in federal court in New York and moved to Texas in 2012. The lawsuit was assigned to Ellison, who is overseeing similar investor litigation against BP.

The plaintiffs also sued James C. Hackett, then chief executive officer of Anadarko, Robert G. Gwin, chief financial officer, and Robert P. Daniels, senior vice president of exploration. The lawsuit, led by the pension funds of Virgin Islands retirees, seeks to represent all investors in Anadarko from June 12, 2009, to June 9, 2010.

The investors claim that Anadarko wasn’t a passive partner in the Macondo well. Anadarko “expressly approved and funded a series of extremely risky decisions made in connection with drilling the well,” investors’ lawyers claim in the lawsuit. These decisions “contributed directly to the disaster,” according to the complaint.

Downplay Role

Once the spill occurred, Anadarko attempted to prop up its shares by continuing to downplay its role in the project, the lawyers said.

The shareholders claim that Anadarko assured investors in a May 4, 2010, conference call that the “potential liability for the Macondo well would be relatively small, approximately $177.5 million, and fully covered by insurance -- when their true exposure was in the billions of dollars.”

“Investors were misled into believing this was going to be BP’s problem,” their attorney, John Browne, said at today’s hearing. “They assuage investors’ concerns and the stock goes up.” Three weeks later, when it becomes more clear “that Anadarko will be on the hook for a lot more than we thought, the stock drops another 20 percent or so,” Browne said.

“This May 4 statement may be your best point,” Ellison told lawyers at the hearing.

During that same call, statements that the company didn’t look into the details of the well plan and its responsibilities under the joint operating agreement are false and constitute securities fraud, Browne said.

After Spill

Investigating such matters “had to be all they were doing” in the days after the spill, Browne said.

“You’re saying he is reckless if he never looked at it and lying if he said he didn’t?” Ellison said, referring to Daniels speaking on the conference call. “You’re saying he may not have known about this by April 19 but he certainly found out about it” before the call?

Schwartz, Anadarko’s lawyer, repeatedly said the company was a passive investor that bore no fault for the blowout and that investors can’t place documents in the executives’ hands that prove they knew their statements were false.

“I don’t think who was at fault that day is our question,” Ellison told him. The judge said the question is whether the company’s public statements were actionable by investors.

Ellison took the lawyers’ comments under advisement and said he’d issue a written opinion later.

Share Drop

Anadarko shares fell from $73.94 on April 20, 2010, to $34.83 on June 9, 2010, a market capitalization loss of $19.3 billion, the shareholders said. The class period ended when news reports surfaced on problems with the spill response and Anadarko’s possible exposure to costs for the disaster, according to the complaint.

Anadarko didn’t have operational control of the well and never said its spill costs would all be covered by insurance, company lawyers said in response to the suit.

In the May 2010 earnings call, Gwin said he couldn’t make an assessment on possible expenses related to the spill, Anadarko said in court papers.

In a 10-Q filed the same day, Anadarko informed investors that it was “currently unable to estimate any potential liability for costs arising in connection” with the spill and “whether the costs might exceed the coverage limits” under the insurance policies, company lawyers said, quoting from the regulatory filing.

Texas Explosion

Anadarko also rejected the investors’ complaint that the company should have known that engaging in a partnership with BP was risky, since the British company had experienced earlier incidents, including an explosion at its Texas City, Texas, facility that killed 15 workers.

“Plaintiffs suggest that investing in a well operated by BP, the largest producer in the Gulf of Mexico, constituted a red flag in and of itself,” Anadarko lawyers said in a Dec. 17 filing. “This unfounded claim warrants dismissal.”

In its settlement with BP, Anadarko was indemnified against all claims and judgments arising under the U.S. Oil Pollution Act, including natural resource damages costs, the company said in regulatory filings.

A nonjury trial over liability for the incident concluded last week in New Orleans. U.S. District Judge Carl Barbier will decide fault for the incident and whether BP or its contractors were grossly negligent, which could trigger higher damages or fines. Barbier said he wouldn’t issue an immediate decision.

Liability Trial

Anadarko and MOEX weren’t part of the liability trial, based on a pretrial ruling by Barbier that they didn’t have control of the operation.

The U.S. sued Anadarko under the Clean Water Act and the company remains subject to fines under that law. Barbier ruled that Anadarko, as one of the owners of the well, was liable by law for Clean Water Act fines.

The possible CWA cost to Anadarko is unknown, the company said in a 2012 10K filing. “Given the company’s lack of direct operational involvement in the event, as confirmed by the Louisiana District Court, and the subjective criteria of the CWA, the company believes that its exposure to CWA penalties will not materially impact the company’s consolidated financial position, results of operations, or cash flows,” Anadarko said in the filing.

Safety Commitment

BP also faces securities-fraud claims by investors who contend the company overstated its commitment to safety and deliberately underestimated the size of the spill in order to bolster share prices.

Ellison limited the BP securities case to investors in the company’s U.S. shares. He set a trial for August 2014.

The case is In re. Anadarko Petroleum Corp. Class Action Litigation, 12-cv-00900, U.S. District Court, Southern District of Texas (Houston).

(Updates with attorney’s argument in fourth paragraph.)
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