Maxus Bankruptcy Deal Faces Opposition From OxyChem

By Patrick Fitzgerald

Maxus Energy Corp.'s deal with its corporate parent, YPF SA, over who is on the hook for the cleanup of New Jersey's contaminated Passaic River hit a hurdle Monday in bankruptcy court.

Occidental Chemical Corp., Occidental Petroleum Corp.'s chemical subsidiary also known as OxyChem, is balking at Maxus's proposed environmental settlement with YPF and the subsequent bankruptcy filing.

"This isn't a fair settlement," said Jerry Roth, OxyChem's bankruptcy lawyer, at a hearing Monday in U.S. Bankruptcy Court in Wilmington, Del. Mr. Roth, a lawyer in the San Francisco office of the law firm Munger, Tolles & Olson, told Judge Christopher Sontchi that OxyChem has questions over whether the settlement talks between Maxus and its parent were conducted at "arms length."

At issue is a deal that calls for YPF to provide Maxus with $130 million in return for Maxus dropping any "alter ego" claims it may have against its parent for cleaning up the river.

Maxus filed for bankruptcy Friday evening, days before OxyChem was slated to head to court in New Jersey over litigation seeking to put YPF on the hook for Maxus's environmental obligations. OxyChem purchased part of Maxus's business in 1986.

YPF, which is Argentina's state-run oil company, bought Maxus Energy Corp. in 1995. A New Jersey state court has ruled that Maxus and an affiliate were responsible for dumping dioxin, a highly toxic chemical and suspected carcinogen, into the river in the 1950s and 1960s.

YPF and Maxus agreed to pay New Jersey $130 million to settle most of the pollution claims in 2013. The following year, OxyChem agreed to pay $190 million to resolve its liability for contamination of the river.

Maxus is responsible for compensating OxyChem for that amount. In the litigation that was slated to begin this week, OxyChem is seeking to extend that responsibility to YPF. The Environmental Protection Agency has put the cleanup cost of an eight-mile area of the river at $1 billion to $3.4 billion.

At Monday's hearing, Maxus bankruptcy lawyer James Peck of the law firm Morrison & Foerster said Maxus is "hopelessly insolvent" and that an adequately funded bankruptcy represents the most desirable way to resolve the claims between the company and its parent.

Argentina's YPF was privatized in 1993 and bought by Spain's Respol SA in 1999. The company was re-nationalized in 2012 by Argentina's then-president, Cristina Kirchner.

YPF is providing Maxus, whose oil and gas holding include thousands of wells in the Gulf of Mexico and half a dozen states, with $63.1 million in bankruptcy funding.

Monday, Judge Sontchi approved the loan on an interim basis, along with a number of the company's other routine requests. He scheduled a July 13 hearing to consider a final approval of the loan.

Write to Patrick Fitzgerald at patrick.fitzgerald@wsj.com

(END) Dow Jones Newswires

June 21, 2016 12:42 ET (16:42 GMT)

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