Associated Press Writer

MONTGOMERY, Ala. (AP) - A judge upheld the largest jury verdict in state history, $3.4 billion in punitive damages against Exxon Mobil Corp. for deliberately underpaying the state for natural gas royalties.

"Exxon engaged in egregious, intentional fraud by which it sought to deprive Alabama of hundreds of millions of dollars, probably well over $1 billion," Circuit Judge Tracy McCooey wrote in an order signed Thursday evening.

Exxon Mobil plans to appeal to the state Supreme Court, which attorneys estimated could take up to a 1 1/2 years to rule.

McCooey presided over the December trial in which a jury decided that Exxon Mobil had fraudulently underpaid the state on royalties for natural gas wells drilled in waters along the Alabama coast.

Along with the record punitive damages of $3.42 billion, the jury awarded the state $87.7 million in compensatory damages, bringing the total judgment to $3.5 billion.

At a hearing last month, Exxon Mobil's lawyers argued that the punitive damage portion of the verdict was hugely excessive, totaling more than 30 times larger than the highest amount the Alabama Supreme Court had ever approved in a fraud case: $105 million.

The state's lawyers argued that a record verdict was needed to get the attention of the giant oil company, which generated $210 billion in revenue in 2000.

The judge agreed with the state's attorneys. She wrote that since the verdict, "Exxon has shown no contrition or even changed its royalty payment calculation. Only a substantial punitive award can punish Exxon and deter it and others."

The state's suit was filed against Exxon in 1999, before the company's merger with Mobil. Mobil also had wells along the coast but the state had no dispute with it.

Shares of Exxon Mobil were up $1.34 to $87.44 in trading on the New York Stock Exchange.