"This settlement agreement with the Litigation Trust and the U.S. Government eliminates the uncertainty this dispute has created, and the proceeds will fund the remediation and cleanup of the legacy environmental liabilities and tort claims,'' Anadarko Chief Executive Officer Al Walker said in a statement.
Anadarko said it would record a net $550 million tax benefit from the agreement.
At a news conference, U.S. Deputy Attorney General James Cole said that the amount of the settlement was in line with a bankruptcy court ruling about liability.
"It provides us with recovery now, as opposed to years and years down the road,'' Cole said.
Anadarko's stock rose as high as 13 percent to $98 per share during afternoon trading on the New York Stock Exchange as word of a settlement circulated.
Anadarko's potential liability has weighed on its shares since December, when U.S. Bankruptcy Judge Allan Gropper said Kerr-McGee, which Anadarko bought in 2006, acted "with intent to hinder'' when it spun off its titanium dioxide unit Tronox a year earlier.
At the time, Gropper said Anadarko should pay from $5.15 billion to more than $14 billion in cleanup costs.
Anadarko had said it through the liabilities should be as little as $850 million.
The settlement is subject to a 30-day public comment period, and then needs approval by both Gropper and a federal court.
Tronox makes titanium dioxide used in paints and inherited heavy environmental liabilities that forced it into bankruptcy in 2009.
Tronox, which makes titanium dioxide used in paints, inherited heavy environmental liabilities that forced it into bankruptcy.
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The company used its Chapter 11 case to shed those liabilities by assigning them to a litigation trust. It emerged from bankruptcy in 2011.
The trust in turn sued Anadarko and Kerr-McGee, arguing the spinoff was a fraudulent ploy by Kerr-McGee to shed its environmental clean-up and make itself a more valuable takeover target for Anadarko, which acquired it in 2006. The move doomed Tronox by weighing it down with too much liability, according to the lawsuit.
The trust represented the U.S. government, 11 individual states, the Navajo Nation, various environmental response trusts and trusts for individual plaintiffs. They said that Kerr-McGee for a variety of health problems caused by pollution from uranium deposits, wood creosote and rocket fuel processing.
The trust represents entities that claimed health problems caused by pollution from uranium deposits, wood creosote and more.
The $5.15 billion pot will fund a wide array of projects, including $1.1 billion to address perchlorate contamination from operations at an industrial park near Lake Mead in Nevada, the litigation trust said.
The Navajo Nation will get about $1 billion to address radioactive contamination from Kerr-McGee's decades-old uranium mining operation, the litigation trust said.
Another $1.1 billion will go toward cleanup at more than two dozen contaminated sites around the country, while the U.S. Environmental Protection Agency will get $433 million to split between New Jersey Superfund sites in Gloucester and Manville, the statement said.