ExxonMobil to challenge $3.5 billion Alabama verdict

ExxonMobil Corp. plans to challenge a $3.5 billion verdict awarded in a case that alleged Exxon defrauded Alabama of royalties on production from 10 natural gas wells in state waters in Mobile Bay. The dispute hinges on whether Exxon was allowed to deduct processing costs from royalties.

Dec 20th, 2000


ExxonMobil Corp. plans to appeal a $3.5 billion verdict awarded in a case that alleged Exxon defrauded Alabama of royalties on production from 10 gas wells in state waters in Mobile Bay, company officials said Wednesday.

That judgement is six times the previous record for civil damages in that state.

Jurors awarded Alabama $87.7 million in compensatory damages and $3.42 billion in punitive damages. They took only 2 hours to consider their verdict.

The award dwarfs the previous Alabama record of $581 million in civil damages in a 1999 case involving the purchase of a satellite dish. It rivals the $5 billion in punitive damages awarded in 1994 by a federal jury to 34,000 fishermen and other Alaskans following the Exxon Valdez oil spill in Prince William Sound in 1989. Exxon�s appeal of that judgment is still pending.

The dispute between ExxonMobil and Alabama began in 1995. Alabama officials claimed the lease agreement required ExxonMobil to pay royalties on the gross proceeds from its interests in gas wells in state waters. ExxonMobil claimed that the terms allowed the company to deduct processing costs before paying royalties. Company officials also maintained that royalties were not required on gas used as part of the Alabama production process.

Consultants figured the unpaid royalties and interest at $87.7 million.

Bob Cunningham, the attorney representing Alabama, claimed that recent escalation of gas prices would have given ExxonMobil a $1 billion windfall from royalty underpayments over a 30-year period. He asked for three times that amount in punitive damages.

�You�ve got to look at not only what they stole, but what they wanted to steal,� he told jurors.

ExxonMobil officials said they did their best to comply with the contradictory terms of Alabama�s leases. They contended that the company did not owe the state nearly the amount claimed, if anything. And they said a simple contract dispute did not warrant such a large punitive penalty.

Alabama has similar suits pending against four other producers in the state�s coastal waters.

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