Exxon to Appeal Royalty Class Action Lawsuit

Exxon Mobil Corp. will appeal a decision by a Texas federal judge who certified a nationwide class action lawsuit against the oil giant. The lawsuit, uniting about 70,000 royalty owners, alleges the company unfairly determined royalty payments from gas sales, claiming Exxon calculated royalties based on the transfer of gas to the major's affiliates, not on the actual value of the gas received.

In a separate development last week, the world's largest oil company also said it would appeal a Louisiana court's fine of more than $1 billion imposed for radioactive contamination on land owned by a former judge.

In the natural gas case, Judge Edward Prado of the U.S. District Court for the Western District of Texas in San Antonio last Wednesday certified the class action lawsuit, which was filed by Houston-based Fleming & Associates L.L.P. The plaintiffs allegedly leased their mineral rights to Exxon in exchange for royalties produced from the sales of the gas and gas liquids from their wells.

Plaintiffs' attorneys say the actual dollar amount of money owed has not yet been calculated because there has been no discovery on the amount of gas that Exxon produced in the United States. The lawsuit claims Exxon and its affiliates engaged in a "gas value chain" scheme in which Exxon allowed the affiliates to produce, gather, process, transport and market the natural gas and then made "unreasonable and excessive" profits at each stage of the value chain.

In a statement, lead plaintiff attorney Robert Herring said, "Exxon has been skimming money off the top and leaving these royalty owners high and dry. They funnel money to themselves through their affiliates, unfairly calculating the basis on which royalties should be paid thus underpaying royalty owners.

"Exxon clearly has violated its contractual duty to market this gas diligently and to obtain the highest price reasonably possible. So many royalty owners across the country have been affected by these unfair practices that a class action suit is the best way to address these wrongs."

On Thursday, Exxon Mobil called the judge's certification decision "inappropriate," and said it would appeal the case to the Fifth Circuit Court in New Orleans.

Exxon has suffered several setbacks regarding its natural gas royalty payments in recent months. In a case decided in December, a jury awarded the State of Alabama $87 million in compensatory damages and $3.4 billion in punitive damages over unpaid royalty fees (see NGI, Dec. 25, 2000).

The case centered on charges that the energy giant (then Exxon, before its merger with Mobil) had underpaid up to $87.7 million in royalties on the Mobile Bay natural gas project in the Gulf of Mexico. The jury 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.

Also last week, Exxon suffered a setback regarding radioactive contamination after a New Orleans civil jury ordered Exxon to pay $1.06 billion in clean up, lost property and punitive damages to former Louisiana state District Judge Joseph Grefer and his family.

According to the lawsuit, the Grefers leased 33 acres of land in Harvey, which is south of New Orleans, for about 30 years to the now-defunct Intracoastal Tubular Services. Intracoastal cleaned Exxon field pipes on the land, which were contaminated with radioactive mud. The family filed the lawsuit in 1997.

Exxon did not deny the contamination and apparently had offered to clean up the land but the Grefer family declined its offers. Responding to the verdict, Exxon said in a statement that the award of $56 million to clean up the contamination was more than 50 times the assessed value of the Grefer property. Exxon claims that less than 1% of the land contains radiation levels above naturally occurring levels. "We will continue to pursue all legal channels to rectify this outrageous verdict," Exxon said in a statement.

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