Claiming that the $3.5 billion punitive damages award to the state in a Mobile Bay royalties case was “without merit,” Exxon Mobil Corp. last week urged the Alabama Supreme Court to overturn the verdict by a lower court jury.

“ExxonMobil has paid more than $1 billion in royalty and lease payments to the state,” said David Boyd, counsel for ExxonMobil. “Only $40 million is in dispute, and we have always sought to resolve the case through an independent audit. Never before has Alabama — or any state — won punitive damages as a result of a contract dispute.”

The suit seeks to overturn the judgment entered by the Montgomery County Circuit Court Dec. 19, 2000, which awarded the state punitive damages six times the state’s previous record of $581 million for a civil lawsuit (see NGI, Dec. 25, 2000). The jury took two hours to return a judgment in the case, and said it set the damages by tripling ExxonMobil’s annual production from 13 natural gas wells located on the Alabama coast in the disputed time.

“In recent years, Alabama has taken numerous actions to improve its civil justice system, including limiting punitive damages,” Boyd said. “The verdict is a throwback to what the state has now fixed. This unjust judgment should be reversed. The punitive award in this case is nearly 40 times the compensatory damages and more than the total of all punitive damage awards affirmed by the Alabama Supreme Court in its history. A simple contract dispute has the potential to send a chilling message to all companies considering business with the State of Alabama.”

ExxonMobil emphasized that the case, at best, is a difference in view over how to compute royalties under offshore gas leases issued by the state, leases that even the trial court found to be unclear.

Terry Koonce, president of ExxonMobil Production Co., said, “ExxonMobil conducts its business in an honest, forthright and professional manner. We are a responsible corporate citizen, and a part of the Alabama community, where our employees live and work. The facts in this case and ExxonMobil’s conduct during the course of its long history in Alabama simply do not support the state’s charges or the trial court’s judgment.

“For example, the U.S. Department of the Interior recently honored ExxonMobil with its prestigious Corporate Citizen Award, recognizing not only the company’s outstanding operational performance, but also our exemplary production and royalty reporting record,” Koonce added. “In the words of the MMS, ‘ExxonMobil is recognized for their outstanding efforts ensuring safe operations and protecting the environment while helping to meet the nation’s energy needs for oil and natural gas from the Outer Continental Shelf. They also excelled in mineral royalty and production reporting and compliance.”

The company added that its capital investment in Alabama exceeds $3 billion and it employs more than 200 people and thousands of contractors, with more than 200 retirees living in the state. In addition, ExxonMobil said it has contributed nearly $3.5 million to charitable, civic and educational organizations throughout the state.

The state brought similar lawsuits against all five oil companies producing natural gas from state leases in Mobile Bay. In late March, Shell Oil reached a settlement to pay the state of Alabama $27 million plus another $6.4 million in legal fees to settle accusations of underpaid royalties (see NGI, March 25). Shell denied any wrongdoing. The state was also awarded $24 million by a jury in December 2001 in its dispute with Hunt Petroleum Corp.

©Copyright 2002 Intelligence Press Inc. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.