Mobile Register

- Lawyers say oil company cheated Alabama out of natural gas royalties.

Montgomery - Attorneys for the state accused Exxon of repeatedly cheating Alabama on royalties from natural gas wells and asked a jury Monday to punish the oil company with the largest verdict in state history - $3 billion.

Exxon’s lawyers told the jury that the oil company tried to follow the state’s “contradictory and unclear” leases and that various state officials had given conflicting interpretations of the leases.

“They want to make this something it is not,” Exxon attorney Joe Espy said as he shook his finger in the faces of the state’s attorneys.

The jury of eight women and four men will begin deliberating Tuesday.

Exxon and state officials have been arguing since 1995 over how much the company owes Alabama in royalties from natural gas well drilled in state waters along the coast. Alabama consultants put the disputed royalties and unpaid interest at $87.8 million. Exxon contends it is much less, if anything at all.

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

Exxon contends the leases allow it to deduct its processing costs before paying royalties. It also contends the leases don’t require royalty payments on natural gas used as part of its Alabama production process.

State attorney Bob Cunningham told the jury that the state deserves more than $87.8 million in compensatory damages.

He said internal Exxon documents showed the oil company labeled Alabama officials “inexperienced” in the natural gas business and deliberately decided to underpay the state. He said that with natural gas prices climbing, the company’s decision to underpay Alabama could have earned Exxon $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 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 the compensatory damages, whichever is greater.

The cap took effect after the state and Exxon sued each other in court and does not apply to the litigation, said Ted Hosp, the governor’s legal adviser.

Gov. Don Siegelman signed a contract with Cunningham’s Mobile law firm that will pay it 14 percent of anything it recovers for the state and nothing if it loses.

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