The Montgomery Advertiser

Exxon owes Alabama $87.7 million in natural gas royalties plus "substantial punitive damages," an attorney for the state said. Tuesday, but the company's lawyer said it has paid its fair share.

Both sides gave opening arguments to a Montgomery County jury and testimony began in a lawsuit filed last year.

Exxon sued Alabama over leases to pump natural gas from wells in state-owned waters. Alabama sued Exxon and alleged the company cheated the state.

Stakes are high-if Alabama wins, it could settle similar disputes against several other oil firms.

The money in question would go into the Alabama Trust Fund, a state savings account with more than $1 billion. Earnings from the savings pay more than $100 million a year toward the cost of state government.

"I have nine Exxon documents I'm going to show you that show a conscious, intentional decision on Exxon's part to underpay royalties to the state," said Mobile attorney John Crowder, a private lawyer hired to represent the Alabama Department of Conservation and Natural Resources, the agency that oversees state lands.

Crowder said Exxon tried to save hundreds of millions through a scheme to shortchange the state.

Citing a company memo, he said Exxon thought it could get away with the plan partly because of Alabama's "inexperienced regulatory staff."

"Do it anyway. All you've got to do is give it back if you get caught,"Crowder said.

Exxon's leases, signed in 1981 and 1984, call for the state to receive 25 percent to 28 percent of the gas sales. But the dispute centers, in part, over whether royalties are due on gross revenue or net revenue.

Montgomery attorney Joe Espy, representing Exxon, said the leases allow Exxon to deduct the cost of purifying natural gas from what it pays the state.

He disputed the claims that Exxon's payments fell short because it failed to get the best possible price when it sold gas.

Martin said that his assistant, Bob Macrory, drew up leases for oil companies using other state leases as models with one important exception- Alabama's lease did not allow companies to deduct certain expenses from royalty payments.

The lawsuit states that Exxon deducted expenses for producing wells on tracts that had no wells. It also accused Exxon of not reporting gas produced from Alabama tracts and failing to pay royalties on the gas and not selling gas at the best price as required by the lease.

Macrory, who is in the department's land division, has been called as a witness and is unable to comment.