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Mar 27, 2004

Natural gas litigation means millions to state, lawyers

Featuring: Robert T. Cunningham, George M. Dent III, John T. Crowder Jr. and David G. Wirtes Jr.

The Associated Press 
3/27/2004, 12:27 p.m. CT 

MONTGOMERY, Ala. (AP) -- The state government's royalty disputes with oil companies that drilled natural gas wells along the Alabama coast have produced $95.5 million for the state and $18.9 million for the attorneys representing the state. 

But that big payoff may turn out to be minuscule when compared to what could come in the future. 

Montgomery Circuit Judge Tracy McCooey is scheduled to rule Monday on whether to uphold or reduce a record $11.9 billion verdict that a jury returned against Exxon Mobil in November. 

In addition, the Alabama Supreme Court is considering whether to uphold, reduce or throw out a $24.6 million verdict that a Mobile jury returned against Hunt Petroleum. 

No one should start counting money from those cases, said conservation department attorney Bob Macrory. Years of appeals may lie ahead. 

Exxon Mobil, for example, is still appealing a verdict against it from the Valdez oil spill in Alaska in 1989. 

Macrory was 37 years old in 1981 when he wrote the leases that oil companies signed to drill along the Alabama coast. He wrote them to favor the state, and 23 years later, the interpretation of those leases is the central issue in the state's lawsuits against oil companies. 

Now 60, Macrory figures he may be retired before the cases are finished. But there's one thing for sure, he said. The cases will go on so long that the state shouldn't count on them to solve its current financial problems. 

The royalty dispute has its roots in former Gov. Fob James' second term, 1995-99, when state conservation officials began to suspect that oil companies weren't paying as much as they should under the leases. James agreed to hire auditors. 

Once the results were known, former Gov. Don Siegelman's administration hired the Mobile law firm of Cunningham, Bounds, Yance, Crowder and Brown to represent the state in lawsuits against oil companies in 1999. The agreement called for the lawyers to get 14 percent of the money they recovered, plus expenses. If they lost, they got nothing - not even money to cover their expenses. 

Attorney Robert Cunningham said it was a huge financial risk for his company at the outset. "But once you get a few settlements under your belt, it's encouraging," he said. 

When Gov. Bob Riley took office in 2003, he brought in former Lt. Gov. Jere Beasley to work with the Cunningham firm and share in its 14 percent. 

Records maintained by the state Department of Conservation and Natural Resources show that oil companies have paid the state $114.4 million in connection with various lawsuits and royalty disputes. From that amount, the lawyers have received $15.4 million in fees and $3.5 million for expenses, and they have more coming. 

Macrory said the attorneys have done a good job of pressing the state's case against large companies with talented legal teams. 

"I wouldn't want to be cross-examined by them," Macrory said. 

At a court hearing on the Exxon Mobil case March 12, an accountant hired by the Cunningham firm testified that the company had spent more than $3 million hiring auditors and other experts to help get the $11.9 billion verdict. So far, the state has not reimbursed it, Cunningham said. 

Cunningham said it takes a large, well-established firm to handle such a big case on a contingency fee. Macrory agreed. He noted that early in the case, the Cunningham firm had spent $2 million hiring accountants and experts and had not received a penny in reimbursement. 

The payments to the state so far include $4.4 million from Hunt Petroleum, $33.5 million from Shell, $29 million from Amoco, $12.5 million from Mobil before its merger with Exxon, and $35 million from Exxon Mobil. Amoco and Shell have settled their disputes with the state. Only Exxon Mobil and Hunt remain in the courts.

Related Case

$11.9 Billion Verdict

$11.9 Billion Verdict for the State of Alabama Against Exxon for Royalty Fraud

State of Alabama vs. ExxonMobil | Montgomery County, Alabama | Case No. CV-99-2368

Cunningham Bounds was retained by the State of Alabama Department of Conservation and Natural Resources to assert claims of royalty fraud against E...

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