A jury returned a $3.5 billion verdict against Exxon Mobil Corp. on Tuesday, finding the oil company defrauded Alabama on royalties from natural gas wells in state waters.

The verdict by the circuit court jury was six times Alabama's previous record of $581 million in a civil damages case.

The jury's verdict awarded Alabama $87.7 million in compensatory damages and $3.42 billion in punitive damages.

The jury arrived at the punitive damages by tripling Exxon Mobil's annual production from 13 natural gas wells along the Alabama coast. The jury deliberated two hours before returning the verdict.

Exxon Mobil spokesman Tom Cirigliano said the company would appeal the verdict, adding, "We have always endeavored to comply with the requirements of our leases."

State attorney Bob Cunningham told jurors internal company documents showed the oil company labeled Alabama officials "inexperienced" in the natural gas business and deliberately decided to underpay the state.

After the verdict, jury foreman Shae Fillingim of Montgomery said those documents were the deciding factor, adding that the company "pretty much know they were doing something wrong."

But Exxon Mobile's lawyers argued that the company has tried to follow the state's contradictory leases for natural gas wells in coastal waters and the simple contract dispute with the state didn't warrant a huge punitive damage verdict.

"The numbers of Exxon are right. They make it something it's not," defense attorney Joe Espy said in closing arguments Monday.

Exxon and the state officials have been arguing since 1995 over how much the company owes Alabama in royalties from natural gas wells drilled in state waters along the coast. Alabama consultants put the disputed royalties and unpaid interest at $87.7 million.

The company--now Exxon Mobile as the result of ta merger deal reached two years ago--contends it is much less, if anything at all.

The state's attorneys contended Alabama's leases with Exxon Mobil require it to pay the state royalties on the gross proceeds from its natural gas wells along the coast.

Exxon Mobil contended the leases allow it to deduct its processing costs before paying royalties. It also contended the leases don't require royalty payments on natural gas used as a part of its Alabama production process. Cunningham told the jury that with natural gas prices climbing, the company's decision to underpay Alabama could have earned Exxon Mobil $1 billion over the next 30 years, and he asked the jury to return three times that amount in punitive damages, or $3 billion.

"You've got to look at not only what they stole, but what they wanted to steal," Cunningham said.

The state also has suits pending against four other oil companies with natural gas wells in Alabama's coastal waters.

The record punitive damage verdict in Alabama is $581 million, returned by a Hale County jury in 1999 in a lawsuit against Whirlpool Financial National Bank over the purchase of a satellite dish. That verdict renewed cries of "jackpot justice" in Alabama and prompted the Legislature to pass a law capping punitive damage verdicts against large companies at $500,000 or three times that amount in punitive damages, whichever is greater.

The cap took effect after the state and Exxon sued each other.

The national record punitive damage verdict against corporations was the $145 billion awarded in July in a lawsuit brought b ailing Florida smokers. That verdict, which is being appealed, was divided among five tobacco companies.