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STATE ATTORNEY ASKS FOR $9.5 BILLION IN ROYALTY CASE

Nov 12, 2003

PHILLIP RAWLS
Associated Press

MONTGOMERY, Ala. - A state attorney asked a jury Wednesday to find that Exxon Mobil Corp. cheated the state out of natural gas royalties and order the oil company to pay $9.5 billion.

"There is one language Exxon Mobil understands and understands real well - money," state attorney Robert Cunningham told the state court jury at the end of a four-week trial.

Irving, Texas-based Exxon Mobil attorneys said the company had followed its leases with the state for natural gas wells in state-owned waters along the Alabama coast and owes the state nothing.

"In the end what the state is asking you to do is change the deal," company attorney Chris King said.

The state sued Exxon Mobil in 1999, contending the company had intentionally deducted too much in expenses for operating its natural gas wells along the Alabama coast and had defrauded the state out of millions in royalties.

A Montgomery jury in 2000 awarded the state $3.5 billion but it was overturned by the Alabama Supreme Court, which said the jury was wrongly allowed to see an internal memo. That prompted a new trial that began Oct. 20.

Cunningham said Alabama drafted a unique lease for oil companies drilling along the coast. He said the lease required oil companies to pay royalties on gross proceeds, but Exxon Mobil deducted expenses like it would have on traditional, industry-friendly leases for processing the natural gas.

Cunningham said the state had been shorted $63.6 million in royalties and that the loss could have climbed to as much as $950 million over the 30-year life of the natural gas field in Mobile Bay. He asked the jury to award the state 10 times the potential loss, or $9.5 billion.

Exxon's attorneys said its interpretation of the lease followed memos from the state Conservation Department that said the company could deduct the "reasonable direct cost of manufacture and transportation."

"There's not one piece of paper where they say no deduction," King said.

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