State seeks more in gas royalty retrial

posted on:
November 13, 2003

author:
Phillip Rawls

category:
Fraud

MONTGOMERY – Alabama’s suit accusing Exxon Mobil of shortchanging the state on natural gas royalties produced a record verdict of $3.5 billion at the first trial. In the retrial, the state ____ an ever bigger verdict.

State attorneys asked a jury Wednesday to return a verdict of $9.3 billion.

There is one language Exxon Mobil understands and understands well money,” state attorney Robert Cunningham told the jury.

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.

Closing arguments in the four-week trial were conducted Wednesday, and jury deliberations were scheduled today.

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 returned a record verdict of $3.5 billion – 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. 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 $930 million over the 30-year life of the natural gas field in Mobil Bay. He asked the jury to return a verdict 10 times the potential loss, or $9.3 billion.

State attorney Jere Beasley said anything less than $4 billion “would be a clear victory for Exxon.”

Exxon Mobil’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.

Exxon Mobil attorney Sam Franklin urged the jury not to lump the oil company with Enron, WorldCom and others involved in corporate accounting scandals. “It is not happening in this case,” Franklin said.

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