Oil Revenue Sharing for All Coastal States: Slam Dunk or Unlikely?

Heavy lift cargo ship transporting an oil rig

The American Petroleum Institute isn’t breaking a sweat over whether the Republican-led Congress will pass legislation that benefits oil-producing coastal states.

“We do believe that is a question of when, not if,” Erik Milito, API’s director of upstream and industry operations, told reporters last month. “State governments could also see major revenue growth from offshore oil and gas development when Congress expands revenue sharing.”

But with Senate Democrats lopsidedly opposed to most initiatives favored by the oil and gas industry, cutting a deal that would allow more states to collect a portion of Treasury funds from offshore drilling might not be so easy, according to some environmental groups.

“In general, we’re concerned about revenue sharing and oppose it in part because it incentivizes new offshore oil drilling that risks an oil spill that can devastate coastal communities, but also because of its harmful impact on the federal budget,” Alex Taurel, deputy legislative director for the League of Conservation Voters, said in an interview. “I don’t share API’s confidence that a revenue-sharing deal would easily make its way through the Senate.”

The issue at hand is whether states that drill for oil on the Outer Continental Shelf – the ocean floor extending about 200 nautical miles from U.S. shorelines – should be remunerated for their role in energy development with funds to manage environmental disasters or assist with the cost of developing new infrastructure. Currently, states with onshore drilling sites are compensated for some of those energy-extraction costs. But the rules don’t apply to states engaged in offshore drilling, meaning certain federal benefits don’t extend to states like Virginia.

“It’s a basic issue of fairness,” Brian Straessle, a spokesman for API, said in an interview. “Every state that hosts oil and natural gas development off their coast should get their share of federal revenue.”

Environmentalists see things differently. They say that giving money back to states with offshore-drilling potential would increase pressure on the Department of Interior to lease and permit more oil and gas development.

A handful of revenue-sharing measures have been introduced the past few years – one even passed the House in 2013 – but it’s unclear if 54 Senate Republicans, and perhaps a handful of Democrats, will be able to get a bill to the White House during the 114th Congress.

The last time revenue-sharing legislation found its way into law was 2006. The Gulf of Mexico Energy Security Act, cosponsored by Sen. Mary Landrieu (D–La.), passed the GOP-led Senate by a vote of 71-25, with support from 17 Democrats. The statute effectively re-directs money from federal coffers to Alabama, Louisiana, Mississippi and Texas while setting aside 12.5 percent of revenues for the federal Land and Water Conservation Fund.

The 2006 law caps state revenues at $500 million per year. Advocates for expanding the program want to double the cap to $1 billion and broaden the boundaries to include all states with offshore oil reserves.

With its wealth of offshore oil reserves, Alaska is among the top stakeholders in this debate. The state is also in an enviable position since one of its two senators in Washington, Lisa Murkowski (R), will be chairwoman of the Energy and Natural Resources Committee starting next month.

But Republican efforts to expand revenue sharing won’t include traditional Democratic allies such as Landrieu, Sen. Mark Pryor of Arkansas and Tim Johnson of South Dakota — all supported the 2006 measure but none will be returning to Congress next year. Also, two of the bill’s opponents included Sen. Maria Cantwell of Washington, who’s expected to be the top Democrat on the Energy Committee next year, and former Illinois senator Barack Obama.

The Department of Interior under Obama has opposed efforts to expand revenue sharing.

Another obstacle might be the price tag for expanding the program. A 2013 revenue sharing bill sponsored by Murkowski would have cost the federal government more than $6 billion in its first 8 years, according to the Congressional Budget Office.

A deal that’s palatable to both sides would likely have to include a more “robust conservation funding commitment,” Eric Washburn, a principal at Bracewell & Giuliani who was an aide to former Senate Majority Leader Tom Daschle (D–S.D.), said in an interview. An agreement that not only provides revenues to coastal states but also funds things like the Land and Water Conservation Fund and the North American Wetlands Conservation Act might be the bargaining chip needed to get Democrats and inland states involved, said Washburn, whose firm provides upstream and oil field services for energy companies.

Even Cantwell could support that type of pact, according to Washburn. “Cantwell has the history to bring the conservation community into this debate in a credible and enforceable way,” he said. “The ingredients are there to bring a deal to the table.”

Cantwell’s office did not respond to a request for comment. In the past, she has cited the need for guaranteed funding mechanisms for conservation efforts.

API’s Straessle identified Virginia’s two Democratic senators – Mark Warner and Tim Kaine – as supporting a broader federal revenue sharing program. Last year, Warner introduced legislation, cosponsored by Kaine, that would provide revenue sharing to Virginia.

But even if a revenue sharing bill received support from every Republican senator, at least a half-dozen Democrats would need to sign on as well in order to clear the 60-vote hurdle needed to avoid a filibuster.

As to whether the oil and gas industry would support a deal that diverts more money to federal conservation efforts, Straessle said “it’s a question of just having to see what the legislation looks like.”

API is the largest trade group representing the U.S. oil and natural gas industry and among the top four percent in terms of lobbying dollars spent in 2014, according to data from the Center for Responsive Politics.

Heading into the 2016 presidential elections, public opinion could play a larger role in this debate. Morning Consult polling data show voters support offshore oil drilling, though a majority of Democrats are opposed to more drilling on federal lands in general.

Morning Consult