Exxon Mobil Corp. will appeal a record $3.5 billion verdictannounced yesterday by an Alabama jury, which found the oil companyhad defrauded the state and underpaid royalties on natural gas wellleases in state waters. The case centered on charges that theenergy giant had underpaid up to $87.7 million in royalties on theMobile Bay natural gas project in the Gulf of Mexico.

On Tuesday, the Alabama jury ruled for the state, with an awardin punitive damages six times the state’s previous record of $581million for a civil lawsuit. The jury took two hours to return ajudgment in the case, and said it set the damages by tripling ExxonMobil’s annual production from 13 natural gas wells located on theAlabama coast in the disputed time.

Exxon Mobil (formerly Exxon Corp.) and Alabama have argued aboutthe lease royalty amounts since 1995. State consultants estimatedthat 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 itmerged with Exxon were not part of the dispute.

According to internal Exxon Mobil documents placed into evidenceduring the trial, Alabama State Attorney Bob Cunningham said thatthe company called Alabama officials “inexperienced,” in thenatural gas business and thus would underpay the state. Juryforeman Shae Fillingim said the internal documents were thedeciding factor and that the jury had found that Exxon Mobil knewit was doing something wrong.

However, Exxon Mobil disputed facts in the state’s case,contending that it had attempted to follow Alabama’s leases fornatural gas wells in coastal waters. It argued that the “simple”contract dispute did not warrant a large punitive judgment. ExxonMobil lawyers contended that the lease contracts allowed thecompany to deduct processing costs before royalties were paid, andsaid that lease contracts did not require royalty payments fornatural gas used in the state’s production process.

A spokesman said Exxon Mobil would appeal. Alabama has lawsuitspending against four other energy companies operating natural gaswells along the state’s coast.

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