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Exxon Spills Oil, Reaps Profits


Still fighting Exxon Valdez payout, using sink-prone tankers.

Several weeks ago was the twentieth anniversary of the Exxon Valdez oil spill, when a grounded tanker spilled 11 million gallons of crude into Alaska's Prince William Sound. The images were shocking: Hundreds of thousands of dead seabirds and fish, more than a thousand miles of damaged shoreline, the tanker's hull spilling oil into the clear blue Alaskan waters.

But few people know that Exxon Mobil (XOM) is still fighting the punitive damages it's been enjoined to pay to the victims. And Exxon has actually made money by fighting the lawsuit for as long as it has.

Last year, the Supreme Court confirmed that Exxon needed to pay punitive damages to the victims of the Valdez spill, even though the court reduced the amount owed. But the company is still avoiding paying interest on those damages. Exxon argues it shouldn't have to pay interest on the original amount awarded to victims in 1994.

In 1994, a jury found Exxon liable for damages because the captain of the tanker -- legally drunk during the crash -- had been previously disciplined for drinking on the job. The jury awarded $287 million in compensatory damages (an amount that rises to $507 million when other settlements are added in) and $5 billion in punitive damages.

Exxon said it had already been punished enough by fines and cleanup costs. Not surprisingly, it appealed the decision. Over the next 13 years, the case jumped between the US District Court in Alaska and the US Court of Appeals for the Ninth Circuit in San Francisco; the latter cut the punitive award in half in 2007.

In a 5-3 ruling last June (Justice Samuel Alito had recused himself as an Exxon shareholder), the Supreme Court capped the punitive award at $507.5 - about one-tenth of the original sum. As it stands, Exxon should pay approximately $1.6 billion overall, but one-third of that amount is interest that accrued for 14 years after the 1994 verdict. Exxon says it shouldn't have to pay interest at all; at most, it argues, interest should accrue only after the Supreme Court ruled on the case.

From the $500 million it didn't pay in 1994, Exxon has since made $4 billion, based on the company's return-on-investment, according to Portfolio. (Even after subtracting the $400 million Exxon has reportedly paid its lawyers, it's still a nice return.) No wonder Big Oil has been such a lightning rod for criticism the last few years.

As for the Alaskans whose livelihoods were destroyed by the spill, they'll likely receive an average of $30,000 each. It seems like a tiny pittance for victims of one of the largest ecological disasters in history. Whatever the final payout, 20% of it will be scooped up by the more than 80 law firms that have represented the plaintiffs. And of the 38,000 original plaintiffs, 6,000 have died since the first suits were filed.

Today, 26,000 gallons of Exxon Valdez crude remain in the Alaskan sand and soil. Which begs the question: Even though environmental concerns command our attention today, could Exxon Valdez happen again?

Sadly, yes. Its lessons don't seem to have sunk in. Bloomberg calculates that Exxon uses more single-hulled tankers -- the most vulnerable to spills -- than the rest of the 10 biggest oil companies combined.

By doing so, it saved one penny a share last year.
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