The 1989 Exxon Valdez oil spill was one of the biggest environmental and public relations disasters ever.
Yet Exxon Mobil Corp., with its enormous wealth and relentless legal defense, so far has avoided big financial damages. It's also convinced Wall Street that the event, at least from a business standpoint, is just a drop in the bucket.
"Relative to Exxon's size, this isn't a black hole," said Howard Weil oil analyst Gene Gillespie. "It's expensive, it's unfortunate, but they can financially deal with it."
For 14 years the world's largest public oil company has battled with more than 34,000 fishermen and other Alaskans who claimed harm after an Exxon tanker ran aground and spilled 11 million gallons of crude into unspoiled Prince William Sound.
But last week, an appellate court rejected a $4 billion punitive damages award against the company. It was the second time in a year the appellate court asked the Anchorage District Court to reconsider what Exxon should pay beyond $287 million in actual damages.
The ruling also marks Exxon Mobil's ongoing success in keeping the Valdez incident off Wall Street's radar screens, something analysts expect Exxon Mobil will continue to do.
"They'll litigate this until the end of time," John S. Herold analyst Lysle Brinker said.
To be sure, Exxon Mobil isn't completely unscathed. The company says it paid $287 million in compensation to fishermen and other Alaskans, as well as $1 billion in state and federal settlements and $2.2 billion for the clean-up of Prince William Sound.
"The company took immediate responsibility for the spill, cleaned it up and voluntarily compensated those who claimed direct damages," Exxon Mobil said in a statement last week.
No buzz
At the same time, Exxon Mobil has done a good job of insulating its stock price and market reputation from the fallout surrounding the spill.
Crisis management experts say the company has so far convinced investors that Valdez litigation won't hurt the company and that the amount of attention paid to the event by news media has been contained.
"The proof of the pudding is in the absence of market buzz," said Neal Flieger, who as head of Edelman Worldwide's litigation practice, advised Microsoft Corp. and MasterCard International during their recent federal antitrust battles. "That means their strategy seems to have been successful."
Investors remain confident Exxon Mobil will do everything in its considerable power to reduce or avoid major damages. In the past few years Exxon has successfully appealed the Anchorage District Court's original $5 billion and then last December's $4 billion awards.
The company now suggests that in light of the Supreme Court's recent State Farm ruling, punitive damages could be as low as $25 million.
Even if the company were to face a $5 billion hit, the world's largest public oil company can easily afford to pay. All of which helps explain why last week's news barely caused a ripple in Exxon Mobil shares.
"I don't think anybody should be concerned with this," said McDonald Investments analyst Jack Aydin.
Herold analyst Brinker observed that Exxon Mobil generates about $3 million of cash flow per hour, which means it can amass $4 billion in less than two months. On a per-share basis, $4 billion is on par with what Exxon earns in one quarter.
The actual charge, moreover, would also be far less after taxes and net of insurance payments.
Potential backlash
From a financial perspective, Exxon Mobil has emerged from the crisis stronger than ever, as evidenced by its record first-quarter results. But one public relations expert warns while Exxon Mobil so far has "weathered the storm," it risks alienating consumers with its hard-ball approach.
"From a public relations standpoint, Exxon remains today the textbook example on how not to handle a crisis," said Ronald Smith, a public communications professor at Buffalo State College and author of "Strategic Planning for Public Relations," published last year.
The plaintiffs, meanwhile, complain Exxon Mobil is using its size and wealth to avoid punishment, nine years after a jury concluded the company had been reckless.
"They've been able to get away with acting in an imperial fashion, by never even coming to the table in a meaningful way to negotiate a settlement," said Melvyn Weiss, a co-founder of class action powerhouse Milberg Weiss Bershad Hynes & Lerach.
"You don't just tie your hands and say 'I'm bigger than you and I'm going to fight you until Doomsday,'" said Weiss, whose firm is one of several representing Valdez plaintiffs against Exxon. "It's an affront to the entire judicial system."
That said, the lawsuit is still in play.
Weiss says he expects federal Judge Russel Holland will conclude the State Farm case is not relevant and resubmit his $4 billion award. Exxon Mobil argues the company should pay no more than $287 million and as little as $25 million.
In any event if Exxon Mobil does not like the new damages figure, analysts said, it will simply appeal.
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