Coastal states launch new bid for offshore drilling dollars

WASHINGTON — Senators from Texas, Alaska and other coastal states have launched a fresh campaign to siphon off more of the revenue that flows to the federal government from offshore drilling.

Four Gulf Coast states already collect some of the royalty revenue that companies pay the federal government for oil and gas extracted offshore, but they want more. And for political leaders in Atlantic states that anticipate offshore oil exploration in the 2020s as well as those in Alaska, where exploratory drilling is expected this summer, the issue is critically important.

Sens. Bill Cassidy, R-La., Lisa Murkowski, R-Alaska and Mark Warner, D-Va., introduced a trio of bills this week that aim to broaden the existing revenue sharing program, setting the stage for the proposals’ possible inclusion in a wide-ranging energy bill now being assembled in the chamber.

They are the latest entries in a long-running fight over who should benefit from the dollars that spring forth along with oil and gas from offshore wells around the United States. For years, coastal states with nearby offshore production have argued that they don’t get their fair share of the royalty revenue from the activity, especially since it strains their infrastructure and poses environmental risks.

“States like Texas that host offshore drilling for the benefit of the nation (should) continue to receive a share of the revenue,” said Sen. John Cornyn, R-Texas, who cosponsored Cassidy’s Gulf-focused legislation.

The governors of North Carolina, South Carolina and Virginia have cast revenue sharing as essential for their continued support of offshore drilling in nearby Atlantic waters.

But some inland lawmakers insist that coastal waters — and the oil and gas produced from them — belong to all Americans, so the revenue should be shared equally nationwide. The Obama administration adopted this view in its latest federal budget plan, which proposed diverting drilling dollars to initiatives providing natural resource, watershed and conservation benefits to “the entire nation.”

Read more: Landrieu calls Obama’s offshore drilling plan a ‘gross injustice to Gulf Coast states’

Offshore drilling foes also have traditionally opposed revenue-sharing proposals out of fear that cash-strapped states would be lured into supporting drilling near their coasts if there was big money up for grabs.
States already take home 100 percent of the royalties for oil and gas extracted from their waters, which typically extend three miles from high-tide lines (though Florida and Texas claim a nine-mile stretch into the Gulf of Mexico).

But the issue is murkier in federal waters beyond the states’ jurisdiction. Under current law, four Gulf states now claim 37.5 percent of the royalties and other revenues that oil and gas companies send the federal government in exchange for drilling rights and production on some outer continental shelf leases in the Gulf of Mexico. The current paycheck is capped at $375 million annually.

In fiscal year 2017, the windfall for those Gulf states will climb to as much as $500 million annually, under an existing 2006-era law.

The Cassidy bill would lift that $500 million revenue-sharing cap for Louisiana, Texas, Mississippi and Alabama, with about $700 million annually from 2018 to 2025 and $1 billion annually from 2026 to 2055 expected to flow to the states.

The measure also would expand revenue sharing to Florida for any leases in the eastern Gulf of Mexico, where development is blocked by statute until 2022. The bill would lift that statutory ban five years early, in 2017, and direct the Interior Department to hold sell leases in the eastern Gulf of Mexico in 2018, 2019 and 2020.

Besides Cornyn, the Cassidy bill is co-sponsored by Republican Sens. David Vitter of Louisiana and Thad Cochran and Roger Wicker, both of Mississippi.

Murkowski’s measure focuses on Alaska, which already receives 27 percent of revenues from oil and gas development in a zone three to six miles from shore, but stands to gain nothing from any activity beyond that six-mile limit.

For 2016 to 2026, Murkowski’s bill would allow 7.5 percent of offshore oil and gas revenues to be shared with the state of Alaska and 7.5 percent to be decided between coastal political subdivisions. From 2026 on, 30 percent would go to the state, 7.5 percent to coastal political subdivisions and 12.5 percent to the federal Low-Income Home Energy Assistance Program, weatherization and the development of Arctic infrastructure.

Murkowski said her legislation would ensure that Alaska and its coastal communities “will receive a substantial share of the revenues from production to compensate for impacts from development.”

Her bill also would require the Interior Department to hold at least three lease sales in the Beaufort Sea, Chukchi Sea and the Cook Inlet during each five-year outer continental shelf leasing program. Annual sales would be required for portions of the Cook Inlet and the Beaufort sea in an area three- to six-miles from the coast, mirroring Alaska’s existing annual sale schedule for leases in state waters within three miles of the shoreline.

Related story: North Carolina governor says drilling dollars are essential to sell offshore exploration along the East Coast

Warner’s bill, cosponsored by Sen. Tim Scott, R-S.C., Sen. Tim Kaine, D-Va., and three other members, would divide offshore oil and gas revenues in Atlantic waters from Virginia to Georgia equally between those states and the federal government.

From 2017 to 2022, 50 percent of the revenues would go to the federal treasury and the remainder would be disbursed to the coastal states. States would be directed to use 10 percent of the money to enhance land and water conservation efforts, improve public transportation, establish alternative energy production and enhance beach nourishment.

The Warner legislation also would direct the Interior Department to hold at least three lease sales of drilling rights in South Atlantic waters. The administration’s current five-year plan governing such auctions from 2017 to 2022, envisions just one, in 2021.

The last significant effort by revenue sharing proponents to advance an expansion in the Senate faltered in 2011, when supporters tried to tie the issue to a broader offshore drilling safety bill. The fight over offshore drilling revenue eventually sunk the broader safety bill, over the objection of then-Senate Energy and Natural Resources Committee Chairman Jeff Bingaman, D-N.M.

A perennial challenge for revenue sharing boosters is ensuring that legislation to expand the existing program is not a budget buster. The bills can carry big pricetags — potentially running afoul of budget rules in Congress — because they effectively pull money away from the federal treasury.

But by requiring new offshore lease sales — potential revenue raisers — the new trio of bills may be drafted to avoid the budget challenge.