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STATE AGAIN SEEKING MULTI-BILLION DOLLAR VERDICT AGAINST EXXON

Oct 20, 2003

By PHILLIP RAWLS
Associated Press Writer

An attorney asked a jury Monday to return another record-setting multibillion-dollar verdict against Exxon Mobil in its dispute with the state over natural gas royalties.

A Montgomery jury in 2000 returned a record $3.5 billion verdict - six times the state's previous record - but it was overturned by the Alabama Supreme Court, which said the jury was wrongly allowed to see an internal memo.

The state and Exxon Mobil began a new trial Monday that is expected to last about three weeks. Circuit Judge Tracy McCooey prohibited attorneys from mentioning the first trial, but state attorney Robert Cunningham made it clear in opening arguments he's hoping for a repeat.

Cunningham told the jury that Exxon Mobil cheated the state out of $102 million in natural gas royalties from wells drilled in state-owned waters along the Alabama coast, and the cheating could have reached $1 billion if it went undetected through the 30-year life of the wells.

He said the punishment should be severe. "We suggest to you that's a multibillion-dollar verdict," he said.

Exxon Mobil attorney Sam Franklin said the oil company has been a good corporate citizen, investing $2.2 billion in developing natural gas reserves along the Alabama coast and paying more than $1 billion to the state in leasing fees, royalties and severance taxes.

"Prestige-wise, the Mobile Bay project has been one of the best things to happen to Alabama," he said.

Franklin accused the state of "over reaching" on its lease agreement with the state to try to get extra money.

At issue are 13 natural gas wells that Exxon drilled along the Alabama coast before its 1999 merger with Mobil.

The state and Exxon Mobil disagree about whether the oil company:

-should pay royalties to the state based on the natural gas as it comes out of the wells or after it has been treated and become more valuable.

-can deduct some of the expenses of collecting and processing the natural gas before it pays royalties.

-intentionally hid what it was doing or was open with the state.

Cunningham said the state initially believed Exxon Mobil was going to be a good partner in the development of the state's natural gas resources, but then learned differently when it audited the oil company's books.

"This was 10 years before Enron, WorldCom and HealthSouth. The state thought a deal was a deal," he said.

"Don't be tricked like that. This is not a case about accounting fraud," Franklin told the jury.

The trial is being conducted as the state goes through a financial crisis that has resulted in more than 400 court employees being laid off, including some in the Montgomery County Courthouse where the trial is being held. The judge has prohibited both sides from mentioning the state's financial situation during the proceedings.

The trial is being held in a tiny courtroom filled with high-tech equipment, including computers and a large screen that attorneys used Monday to explain to the inland jury how the natural gas industry operates 170 miles away on the Alabama coast.

The jury saw pictures of natural gas platforms along Alabama's coast, charts about how natural gas is gathered and treated, and an explanation of how natural gas is used in industries and homes.

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