BUENOS AIRES—Argentina’s state-run oil company, YPF SA, has reached a deal with the state of New Jersey that might allow the company to avoid billions of dollars in potential liabilities related to the contamination of the Passaic River.
According to the state of New Jersey, YPF and a handful of other companies agreed to pay the state $130 million to settle some claims alleging they are legally responsible for the dumping of dioxin, a highly toxic chemical and suspected carcinogen, into the river in the 1950s and 1960s.
New Jersey says the defendants have for decades “orchestrated and implemented a strategy to delay and impede the cleanup and restoration of the Passaic River.”
Under the terms of the deal, which will have to be approved by a state court, YPF agreed to pay $65 million in cash to New Jersey, the company said in a filing Monday with the U.S. Securities and Exchange Commission. YPF would also see its potential liability in the case limited to $400 million.
A recent Environmental Protection Agency estimate had put the cleanup cost of an eight-mile area of the river at between $1 billion and $3.4 billion. Cleaning up an even larger contaminated area could raise that amount significantly.
YPF itself didn’t pollute the river. But a New Jersey state court ruled two of YPF’s subsidiaries, Maxus Energy Corp. and Tierra Solutions, were responsible for the pollution. YPF bought Maxus Energy Corp. in 1995.
Maxus’s predecessors owned a Newark chemical plant, which the state says dumped dioxin into the river, until 1986. Tierra Solutions was created to deal with any cleanup costs and legal liabilities.
That plant “manufactured pesticides and herbicides from the 1940s through the 1960s, including the infamous defoliating chemical Agent Orange during the Vietnam War. Over a period of many years, the…plant discharged the known carcinogen dioxin, as well as other hazardous substances, into the Passaic River,” the state said Tuesday.
New Jersey said other companies, including YPF Holdings, Inc., YPF International, Spain’s Repsol SA, CLH Holdings, Inc., Maxus Energy Corp., Maxus International Energy Company and Tierra Solutions Inc., also joined the settlement.
By doing so, the companies limited their total exposure to cleanup and removal costs, and damage claims, to a maximum of $530 million as a group, the state said.
A YPF spokesman declined to comment. A Repsol spokesman said the settlement essentially ends the state’s litigation in the case and caps future liabilities for the company. Maxus officials didn’t reply to a request for comment. CLH Holdings and Tierra officials couldn’t be reached for comment.
One litigant, Occidental Chemical Corp., also known as OxyChem and which purchased part of Maxus’s business, didn’t participate in the deal. New Jersey said it plans to pursue claims against Occidental for “all future clean-up and removal costs related to contamination of the Passaic River.”
Last year, a state court held Occidental liable for cleanup and removal costs. However, in 2011 the court ruled that Maxus Energy was required to indemnify Occidental for any liabilities associated with the river’s dioxin pollution. Maxus sold part of its business to Occidental in 1986.
As part of that transaction, Maxus agreed to indemnify Occidental for certain previous legal liabilities, including environmental liabilities, according to an annual filing YPF sent to the U.S. Securities and Exchange Commission.
Eric Moses, a spokesman for Occidental, said Maxus is required to pay for “all liabilities” that Occidental might face in the New Jersey case.
Given the court’s previous ruling on Maxus’s potential responsibility to Occidental, it is unclear how additional claims for cleanup costs and damages could affect some of the parties involved in the dispute.
EPA officials say the cleanup could take more than a decade, while the final price tag will depend on how much of the river sediment is dredged and where it is stored.
Write to Taos Turner at taos.turner@dowjones.com