Coastal states could cash in on offshore energy

12 31, 2012 by Fuel Fix

Coastal states stand their best chance in years of winning more federal dollars tied to oil and gas harvested near their shores, thanks to a shuffle in the leadership of the Senate Energy and Natural Resources Committee.

The change in fortunes for long-stalled royalty-sharing proposals comes courtesy of a new chairman: incoming Sen. Ron Wyden, D-Ore., who is taking the gavel from retiring Sen. Jeff Bingaman, D-N.M.

Wyden has signaled he is willing to discuss revenue sharing, possibly as part of a broad energy bill, though not necessarily part of a plan to broaden offshore oil and gas drilling.

The top Republican on the energy committee, Lisa Murkowski of Alaska, credited Wyden’s support for a fresh debate on offshore revenue sharing with reviving the issue.

“I think it’s important that we’re able to have the conversation on revenue sharing,” Murkowski told Platts Energy Week. “It’s too important an issue. I appreciate that Sen. Wyden has left the door open and intends to explore it.”

Inland states generally claim 50 percent of the revenue from oil and gas production on federal lands within their borders. And states already take home 100 percent of the royalties from oil and gas extracted from their waters, which typically extend three miles from high-tide lines (though Florida and Texas enjoy jurisdiction as far as nine miles out).

The issue is what happens with revenues from energy produced in federal waters outside states’ control. Under federal law, just four coastal states – Alabama, Louisiana, Mississippi and Texas – lay claim to some of that money. Those states will be able to collect 37.5 percent of oil and gas royalty revenue on some leases beginning in 2017.

Under current law, half of the revenue collected for energy harvested in federal waters near those four Gulf Coast states will go to the U.S. government. A quarter of it will be funneled to the Federal Land and Water Conservation Fund, a 45-year-old program that pays for government land purchases and local park and recreation projects.

Revenue sharing supporters insist that coastal states deserve compensation for the burden of offshore energy development near their shores, including building onshore infrastructure to support the work and being hit by damage from any spills. And they stress the inequity to states when it comes to revenue from energy harvested on federal lands versus federal waters.

“You can see how the burden of offshore development does really weigh on those states,” said Erik Milito, upstream director for the American Petroleum Institute. “It makes sense to provide revenue sharing for those states that support the offshore activity.”

The last bid to expand revenue sharing collapsed last year. That initiative, advanced by Murkowski and Sen. Mary Landrieu, D-La., would have allowed Alaska and all other coastal states to collect 37.5 percent of the federal revenues for energy produced in nearby federal waters.

Half of the collected revenue would still go to the federal government.

Landrieu and Murkowski sought to add the revenue-sharing proposal to a broader drilling bill moving through the energy committee.

That legislation stalled, and Bingaman – a revenue-sharing skeptic – never brought it up again.

Supporters may soon seek to emphasize how states could cash in on offshore wind and solar farms as well as oil and gas development near their shores as a way to build support for revenue-sharing.

“Revenue sharing should not necessarily be limited to oil and gas,” Murkowski said on Platts Energy Week. “If you have a wind farm offshore, revenue sharing from those renewable energy projects and those leases also could be made a part of what we’re talking about.”

Supporters also could rework previous proposals to lower the amount of revenue that other, newly eligible coastal states would collect, perhaps dropping it from the 37.5 percent target in last year’s bid, as a way to draw support.

For the Gulf Coast states, new revenue-sharing proposals could be drafted to allow them to claim the cash earlier, while extending the privilege to other states, such as California and Alaska that don’t have the benefit, despite nearby offshore drilling.

Still, revenue sharing boosters will face opposition, both from lawmakers worried about keeping dollars from ending up in federal coffers and environmentalists opposed to offshore drilling.

Offshore drilling foes worry that the prospect of drilling dollars would be too difficult for cash-strapped states to resist. Coastal states struggling to balance their budgets could be lured into supporting drilling near their coasts, even those that have historically resisted new offshore development, conservationists say.