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Texas-based oil corporation Anadarko announced on Tuesday that it would double the amount of quarterly dividends for common stock, a move that coincides with the Fifth Circuit Court awarding Anadarko $9 million plus interest for oil sales in 2000-2002.
Although it may be written off as a coincidence, Anadarko's Exec. Vice Pres. and CFO, Bob Gwin attributes the dividend increase to the company's capability to "deliver capital-efficient growth within cash flow" (read: money money money), reports The Wall Street Journal.
While Anadarko's investors are soon to be lining their pockets, what caused this windfall?
Anadarko's Alaskan Oil Contract
Anadarko, a Woodlands, Texas based corporation, had two oil contracts with Alaskan oil refinery operator Williams Alaska, which was to be delivered between the two by use of the Trans Alaska Pipeline System (TAPS) -- authorized by Nixon under the Trans-Alaska Pipeline Authorization Act.
The agreement between the two companies worked on an base estimate of what price the oil shipped by Anadarko would be evaluated at by the TAPS Quality Bank, a third party who would either charge shippers of lower-quality oil or credit shippers of higher-quality oil.
The Federal Energy Regulatory Commission (FERC) later found the methods for assessing oil quality was inaccurate, resulting in failed attempts to quash FERC's orders and more importantly a $9 million credit from the TAPS Quality Bank to Williams Alaska for their Anadarko oil.
Anadarko wanted the credits they were owed for their higher quality oil plus interest, but Williams Alaska argued that the contract obligations were finished.
A Bar-Exam Contracts Question
This seems like the sort of question one might encounter on the Texas bar exam. Because questions of contract interpretation are reviewed de novo, the Fifth Circuit revels in the chance to explain basic principles of Texas contract law to the appellants.
Normally extrinsic evidence isn't allowed in contradicting or interpreting contract language, but course of dealing is always a good yard-stick. The Fifth Circuit noted that Anadarko and Williams Alaska would frequently "true up" the price paid for the oil based on the credits Williams Alaska had received from TAPS Quality Bank for the oil earlier that month.
Based on this practice, the Anadarko Court had no problem assuming that the later TAPS Quality Bank credits were part of the "payment" to Anadarko required by the contract.
Anadarko Not SOL
The statute of limitations for Texas breach of contract claims is four years, which begins tolling when the breach occurs, not when the contract ends.
So despite the fact that the agreement to sell oil ended in 2002, Williams Alaska began its breach in 2007 when it received the $9 million in credits from TAPS Quality Bank that was owed to Anadarko, now with interest for the last six years.
Anadarko investors have received a nice windfall likely due to this contract victory, and Williams Alaska should have known better than to keep the TAPS credits that they knew were owed to Anadarko.