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Give States a 50/50 Split for Offshore Drilling Revenue

Posted By Mike Brownfield On June 15, 2011 @ 10:38 am In Energy | Comments Disabled

Among the many broken pieces of America’s offshore energy policy is the split between federal and state government royalty revenue. Implementing an even split would go a long way to encourage more offshore oil and gas production and promote states’ rights.

Currently, in offshore waters where drilling occurs, coastal states collect [1] 100 percent of the royalties from production in state waters and 27 percent of the revenue within three miles of state waters. The 2006 Gulf of Mexico Energy Security Act (GOMESA) gives Alabama, Louisiana, Mississippi, and Texas a 37.5 percent share from just one federal lease sale area.  Although bountiful oil and gas resources exist off the Atlantic and Pacific coasts, policies restrict access and thus the states collect no royalty revenue. As gas prices hover around $4 per gallon, there is a renewed interest in expanding oil and natural gas exploration and production off America’s coasts. With that has come a push for a 50/50 royalty revenue sharing for the states for all lease sales.

Increasing the royalty states receive would help shrink budget shortfalls these coastal states are facing [2], and it would help open the possibility of drilling expansion and drilling in areas off limits in the Atlantic, Pacific, and Eastern Gulf of Mexico. It could provide a huge boon for states that haven’t had the luxury of oil production.

For instance, a 2009 Southeast Energy Alliance study found that including the Mid-Atlantic Region in new oil and gas leases would provide tremendous economic benefits to the state of North Carolina [3]: 6,700 new jobs, $659 million annual increase in gross domestic product (GDP), and up to $577 million coming into North Carolina’s treasury if the state received the 37.5 percent the Gulf states collect in the 181 lease sale area. Obviously that figure would be even greater with a 50/50 split.

Virginia, South Carolina, and Georgia would also stand to benefit greatly from opening the Mid-Atlantic region, as would California and Alaska. Senator Lisa Murkowski (R–AK) recently stressed that [1] “Our focus should be on legislation that advances safety, production and a fair return of revenue to coastal states simultaneously.”

States’ rights are equally important. Drilling off states’ coasts and allowing them a larger share of the royalty revenue would encourage more state involvement in drilling decisions. It would promote state and local government participation in allocating funds as well, whether it is closing a state’s deficit or coastal restoration and conservation.

Critics argue that when the oil and gas is in federal waters, the revenue belongs to all 50 states. A spokesman for Senate Energy and Natural Resources Chairman Jeff Bingaman (D–NM) said, “Chairman Bingaman still opposes the diversion of revenue to individual states from federal resources that are owned by all 50 states.” Yet onshore states, like Senator Bingaman’s, receive  50 percent of the revenues generated from onshore oil and natural gas production on federal lands. And this is the way it should work. It makes no difference whether it is on land or water—the royalty revenue split should be the same.

Another criticism is that less money would be coming into the federal government to close the deficit. While this would be the case, comprehensive legislation that opens access to energy supplies in the Atlantic, the Pacific, and the Eastern Gulf of Mexico could yield billions in government revenue and is good policy.

In 2008, when gas prices reached record levels and the congressional restrictions on energy leasing in 85 percent of America’s territorial waters—which have been renewed annually since 1982—were allowed to lapse, Senator Jim DeMint (R–SC) offered comprehensive legislation that would have permanently ended the bans on offshore drilling, expedited the leasing process and judicial review of environmental lawsuits, and ensured 50/50 state royalty sharing. Such a framework would provide a predictable environment for the private sector to explore and extract these resources if it makes economic sense to do so and allow the federal government and state governments to collect billions of dollars [4] from royalty revenue, lease bids, and rental payments.

With gas prices remaining high, Exxon’s recent discovery [4] of an estimated 700 million barrels in the Gulf of Mexico, and the continued struggle to create jobs and grow the nation’s economy, one would think opening access to America’s offshore oil and gas reserves would be a priority. If those reasons weren’t enough for the government to allow drilling, creating a system of 50/50 revenue sharing is not only good policy, but it would also incentivize more state buy-in for offshore drilling.


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2011/06/15/give-states-a-5050-split-for-offshore-drilling-revenue/

URLs in this post:

[1] coastal states collect: http://landrieu.senate.gov/mediacenter/inthenews/05-19-2011-1.cfm

[2] these coastal states are facing: http://www.aarp.org/money/taxes/info-01-2011/state_budget_gaps.html?CMP=KNC-360I-GOOGLE-MON-TAX&HBX_PK=state_budget_deficits&utm_source=Google&utm_medium=cpc&utm_term=state%2Bbudget%2Bdeficits&utm_campaign=G_Money&360cid=SI_232713695_6436623557_1

[3] economic benefits to the state of North Carolina: http://consumerenergyalliance.org/wp/wp-content/uploads/2009/07/sea-report.pdf

[4] billions of dollars: http://washingtonexaminer.com/opinion/op-eds/2011/01/rob-bluey-shore-drilling-bans-delays-cost-government-revenue

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