Exxon Mobil to Appeal $3.5B Royalty Judgment
Exxon Mobil Corp. said it will take "all legal steps" to
challenge a record $3.5 billion verdict announced last week by an
Alabama jury, which found the oil company had defrauded the state
and underpaid royalties on natural gas well leases in state waters.
The case centered on charges that the energy giant had underpaid up
to $87.7 million in royalties on the Mobile Bay natural gas project
in the Gulf of Mexico.
Last Tuesday, the Alabama jury ruled for the state, with an
award in punitive damages six times the state's previous record of
$581 million for a civil lawsuit. The jury took two hours to return
a judgment in the case, and said it set the damages by tripling
Exxon Mobil's annual production from 13 natural gas wells located
on the Alabama coast in the disputed time.
Exxon Mobil (formerly Exxon Corp.) and Alabama have argued about
the lease royalty amounts since 1995. State consultants estimated
that the underpayments and unpaid interest totaled $87.7 million.
However, Exxon Mobil said the amount was less, if anything at all.
Wells that Mobil Corp. developed along the Alabama coast before it
merged with Exxon were not part of the dispute.
According to internal Exxon Mobil documents placed into evidence
during the trial, Alabama State Attorney Bob Cunningham said that
the company called Alabama officials "inexperienced," in the
natural gas business and thus would underpay the state. Jury
foreman Shae Fillingim said the internal documents were the
deciding factor and that the jury had found that Exxon Mobil knew
it was doing something wrong.
However, Exxon Mobil disputed facts in the state's case,
contending that it had attempted to follow Alabama's leases for
natural gas wells in coastal waters. It argued that the "simple"
contract dispute did not warrant a large punitive judgment. Exxon
Mobil lawyers contended that the lease contracts allowed the
company to deduct processing costs before royalties were paid, and
said that lease contracts did not require royalty payments for
natural gas used in the state's production process.
Tom Cirigliano, an Exxon Mobil spokesman, said last week that
the company would challenge the verdict as long as necessary, and
Bob Macrory, an attorney with Alabama's Conservation Department,
who authored the leases for the state with Exxon, said he is sure
the case would be appealed all the way to the U.S. Supreme Court.
Another Alabama official, John McMillan, who was the state's
Conservation Department commissioner in 1981 when the leases were
approved, said he expects the verdict to be reduced or settled for
a smaller amount. However, he said Alabama would not see any of the
settlement, if any, for years.
Alabama has lawsuits pending against four other energy companies
operating natural gas wells along the state's coast.
Carolyn Davis, Houston
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