After $5 Billion Exxon Verdict, the Jury’s Still Out on the Effect
Undated (AP) _ When a jury ordered Exxon Corp. to pay $5 billion in punitive damages for the Exxon Valdez oil spill, Alaska fisherman Jerry McCune’s first impression was that justice had been served.
But McCune started to wonder when he saw Wall Street’s reaction: Exxon stock rose $1.50 per share that day, to $60.25.
″I guess there’s more to the stock market than I understand,″ said McCune, a gill-net fisherman in Prince William Sound.
Two weeks after a federal jury in Anchorage came back with the biggest punitive damage award in U.S. history, McCune is not the only one guessing.
Oil industry insiders say it’s too early to tell how the $5 billion judgment will affect Exxon and other oil companies.
Environmentalists say the verdict shows that environmental protection must be taken seriously. But industry insiders say it could raise insurance costs for oil shippers, make Alaska crude less competitive on the world market and stifle oil development in the United States.
In any case, nobody thinks Exxon was dealt a staggering blow.
″It’s a lot of money, no question about that. But if there’s one or two or three companies in the world that could afford it, one of them would be Exxon,″ said Gerald Kepes, an analyst with the Petroleum Finance Co., a consulting company in Washington.
Exxon had $5.3 billion in profits and $111 billion in revenue in 1993.
One reason for Wall Street’s recent nonchalance - Exxon stock has fluctuated between $57.50 and $59.50 per share since the verdict - is that investors appear to have been bracing for worse.
In June, Exxon stock fell $2.625 the day after the same jury decided the company could be held liable for punitive damages in the 1989 grounding of the Exxon Valdez. The tanker spilled nearly 11 million gallons of crude that fouled 1,500 miles of Alaska’s pristine southern coast.
The plaintiffs, an estimated 12,000 to 14,000 commercial fishermen, Alaska natives and property owners, had sought $15 billion in punitive damages.
Moody’s Investors Service announced Tuesday it would continue the negative outlook it initiated in June on Exxon’s coveted Aaa credit rating but would not start a review to reduce it.
Ted Izatt, an oil analyst at Moody’s, said Exxon has several options for coming up with $5 billion: reduce its oil exploration and other capital expenses, suspend its stock-repurchase program, reduce dividends or borrow money.
That’s assuming the verdict holds up.
″I’m not sure people think they’ll end up paying $5 billion,″ Kepes said. ″Motions and appeals could drag on for years. They could end up settling, or drag out payments over 10 years.″
Exxon has vowed to use ″every legal means available″ to overturn the verdict.
On Friday, the company filed motions in federal court in Anchorage seeking to overturn or reduce the verdict.
The verdict may further erode Alaskan and U.S. competitiveness in the world oil business, said Becky L. Gay, executive director of the Resource Development Council of Alaska.
″It wouldn’t surprise me if the insurance industry tries to put a premium on ships going to Alaska,″ she said. ″That would be an example of where environmental regulatory extremes would have a direct effect on doing business in Alaska.″
″The risk of exposure has gone way up,″ agreed Eugene O’Connor, a partner at Freehill, Hogan & Mahar, a New York law firm representing tanker-insurance cooperatives. ″The most careful operator in the world can still wind up in a situation that can cause a spill.″
But environmentalists welcomed the jury’s action.
″That kind of verdict sends a message not only to Exxon but to other corporate boardrooms that pollution prevention has to be a lot higher priority than it has been in the past - and not just the oil industry,″ said Sarah Chasis of the Natural Resources Defense Council.
David Oesting, a lawyer for the plaintiffs, said the $5 billion verdict teaches Exxon a lesson in the only language a corporation understands - money.
″You can’t incarcerate a corporation,″ he said. ″You can’t kick them, because they have no body. You can’t condemn them to hell, because they have no soul. So you hit them in the one place you can hurt them - in the pocketbook.″