ExxonMobil Responds to Public Officials' Statements Regarding Alabama Royalties Verdict.

Business Editors

IRVING, Texas--(BUSINESS WIRE)--Dec. 27, 2000

The unfortunate comments by Alabama government officials and lawyers as reported in the media following the Montgomery County (Alabama) jury verdict against ExxonMobil demand a response.

Officials are quoted as saying ExxonMobil "attempted to cheat the people of Alabama" and that ExxonMobil believed it "could get away with (it) because the people of Alabama were too inexperienced to understand they were being cheated." The comments are offensive to ExxonMobil and they should be troubling to the entire business community. The facts in this case and ExxonMobil's conduct during the course of our long history in Alabama do not support the reported remarks.

This is a contract dispute over approximately 40 million dollars.

ExxonMobil has paid Alabama more than one billion dollars in royalties and bonus payments since 1993. The real amount in controversy here is approximately 40 million dollars in additional royalties claimed by the State (of course, interest must be added to this amount). This case is a contract dispute where reasonable people differed over the interpretation of an ambiguous lease agreement as to how to calculate royalties paid to the State of Alabama. These legitimate disputes occur regularly between government and the private sector on a whole host of issues, including royalties and taxes as well as deductions that are taken against, or used in calculating the payment of, royalties and taxes. Even the State and the trial judge have acknowledged the lack of clarity in the royalty provision of the lease. In fact, in 1998, the Department of Conservation and Natural Resources (DCNR) asked the Alabama Attorney General to interpret the royalty provisions of the lease. No opinion has yet been published by the Attorney General.

The State knew exactly how ExxonMobil was going to pay royalties on this ambiguous lease form before the first royalty payment was made.

The undisputed evidence at trial showed that we also met with the DCNR in 1994, shortly after production from Mobile Bay had begun. We advised the Department of our lease interpretation and of ExxonMobil's

intention to use a payment method with which the State disagreed. The Department acknowledged the disagreement and told ExxonMobil that the dispute would be resolved in the audit process. When we failed to reach an agreement during the audit process, ExxonMobil filed a declaratory judgment asking the court to validate our interpretation. No one was hiding the facts.

During the trial, the DCNR claimed that ExxonMobil underpaid royalties to the Department and in doing so, falsely reported volumes of natural gas produced, sold, or used as fuel from Mobile Bay. The Department alleged that ExxonMobil misreported these volumes in an attempt to deceive and cheat the Department. The undisputed evidence at trial revealed that ExxonMobil reported all volumes of natural gas and other products produced from its wells to the Alabama Oil and Gas Board. Those reported volumes included all volumes consumed as fuel, including those volumes on which ExxonMobil was not paying royalties.

Those reports were filed under oath, they were public record, and were available to the DCNR and any other interested person on the Internet. At trial, the accuracy of these reports was never challenged. Instead, the Department claimed that by filing these reports with the Oil and Gas Board instead of the DCNR, ExxonMobil hid the information from the Department as part of its effort to "cheat" the State.

All of this evidence was made available to the Department during the course of its four-year review of ExxonMobil's records. After that review had begun, former Commissioner of the Department, James Martin, issued a press release in which he declared to the world that "the investigation did not show any intent by the oil companies to defraud the state."

Plaintiffs' lawyers working for the State pulled statements out of context.

Finally, statements that ExxonMobil took advantage of the Department because it knew that "the people of Alabama were too inexperienced to know" any better are patently untrue. The trial evidence shows that an internal ExxonMobil memorandum refers to "inexperienced regulatory staff and processes" in the context of a description of the Department's poorly drafted lease form. Specifically, the document states: "Key Issue: What costs downstream of the wellhead are deductible to calculate royalty? Provisions in the mineral lease are unclear as to permissible deductions; No Alabama case law on point; inexperienced regulatory staff and processes." In context, the statement is an attempt to explain why the Alabama lease form is so "unclear." In fact, the trial evidence shows that the Department employee who wrote the lease did so by cutting and pasting together provisions of other lease forms. He admitted at trial that he had never before written an oil and gas lease, that it took him a year to write this one, and that he has not written one since.

ExxonMobil has invested billions of dollars in Alabama and employed hundreds of people.

ExxonMobil is as troubled by Alabama officials' remarks as we are by the verdict. We believe both amount to a personal attack on the integrity of ExxonMobil and should be a frightful message to the business community. ExxonMobil has more than a three billion dollar investment in the future of Alabama at Mobile Bay and in the hundreds of employees and contractors working for ExxonMobil throughout the State. Because we are convinced that the verdict is manifestly unfair and without support in the law or facts, we will exhaust all available avenues of appeal. But while the legal process grinds on, we want to stress how unfortunate it is that our long-term relationship with the state and the lives of so many fine people could be adversely impacted by the remarks surrounding this litigation.