YPF YPF Sociedad Anonima

By Patrick Fitzgerald 

Maxus Energy Corp. is defending a $130 million settlement with its corporate parent over responsibility for the cleanup of New Jersey's contaminated Passaic River.

Maxus was one of dozens of companies tagged with blame for discharging hazardous substances into the river decades ago. The company filed for bankruptcy in June after striking a bargain with owner YPF SA over its corporate parent's alleged liability for the cleanup.

Maxus's deal with YPF, Argentina's state-owned oil company, triggered a protest from Occidental Petroleum Corp.'s chemical subsidiary, known as OxyChem, which has been sparring with YPF for years over who should be on the hook for cleaning up the river.

Lawyers for Maxus on Monday acknowledged the settlement "has engendered controversy" but maintained it was the best option "when compared to the risks of losing everything at trial and garnering no value for the debtors' creditors."

"A fixed settlement payment of $130 million, along with funding of the costs of these bankruptcy cases, was of greater value to the debtors' estates than the uncertain prospect of potentially recovering nothing at all," Maxus lawyers said in a filing with the U.S. Bankruptcy Court in Wilmington, Del.

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.

Under the deal, which requires court approval, YPF has agreed 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.

OxyChem contends that YPF is legally responsible as an alter ego for the environmental liabilities owed by its subsidiary, Maxus. Maxus filed for bankruptcy just days before OxyChem was slated to head to court over litigation seeking to put YPF on the hook for Maxus's environmental obligations.

OxyChem, which purchased part of Maxus's business in 1986 and sold it to YPF a decade later, has called the proposed settlement a "highly choreographed multiyear process" through which YPF is seeking to sidestep its environmental obligations.

OxyChem contends in court papers that YPF used a series of sales and a corporate restructuring to leave Maxus a "stripped-down shell of a company" by 2013, which gutted the value of the indemnity it provided to OxyChem 30 years ago.

YPF has denied liability, and says it shouldn't be stuck with a cleanup bill Maxus agreed to with OxyChem nearly a decade before it was purchased by the Argentine oil company.

A lawyer for OxyChem declined to comment.

Until 1986, Maxus's predecessor, Diamond Shamrock Chemical Corp., owned a Newark, N.J., chemical plant that the state says dumped dioxin into the river. The plant manufactured pesticides and herbicides from the 1940s through the 1960s, including the chemical Agent Orange used during the Vietnam War.

Over the years, the plant discharged dioxin, as well as other hazardous substances, into the river. A New Jersey court held OxyChem liable for cleanup and removal costs. However, in 2011, the court ruled Maxus was required, as part of the 1986 sale, to indemnify OxyChem for any liabilities associated with the river's dioxin pollution.

The Environmental Protection Agency has put the cleanup cost of an eight-mile area of the river at $1 billion to $3.4 billion. Cleaning up an even larger contaminated area could raise that amount significantly

Maxus's lawyers have argued the company 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 renationalized in 2012 by Argentina's then-president, Cristina Kirchner.

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

(END) Dow Jones Newswires

August 30, 2016 15:32 ET (19:32 GMT)

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