EXXON MOBIL CORP. V. ALABAMA DEPT. OF CONSERVATION AND NATURAL RESOURCES, 986 SO.2D 1093 (ALA. 2007)

Exxon Mobil brought declaratory judgment action against State to determine the rights of the parties under natural gas leases, and State counterclaimed, alleging breach of contract and fraud in connection with unpaid royalties. The Montgomery Circuit Court, No. CV-99-2368, McCooey, J., entered judgment on a jury verdict awarding $87.7 million in compensatory damages and $3.42 billion in punitive damages to State. Oil company appealed. The Supreme Court, reversed and remanded. On remand after a three-week trial the Circuit Court entered a judgment on a jury verdict awarding the State $100 million in compensatory damages and $11.9 Billion in punitive damages. The Circuit Court remitted the punitive damages award to $3.5 billion. ExxonMobil appealed. The Supreme Court affirmed in part, and reversed in part, holding that ExxonMobil owed royalties on gas that it retained to operate its facilities; that it was not entitled to deduct from its gross proceeds the expenses of extraction and processing before computing royalties; that the company owed royalties on its net proceeds from the sale of slop oil, which was produced when diesel fuel was used to extract heavy hydrocarbons from the natural gas; and that the evidence did not support the jury's finding of fraud.