Louisiana Gov. seeks fair method of distribution of royalties from

Gov. Kathleen Babineaux Blanco is seeking ways to address what many in Louisiana have long considered an unfair method of distributing royalties from state oil and gas production.

Blanco's options include suing the federal government and teaming with governors from other coastal oil-producing states to lobby for money to help rebuild Louisiana's eroding coastline.

Blanco could go so far as to ban drilling off the coast to try to force the feds to assist with erosion efforts.

There clearly is an avenue, the same avenue that Florida and California have taken, which is (to be consistent) with the state's Coastal Zone Management Act, said Ted Falgout, executive director of the Greater Lafourche Port Commission. Part of the CZMA says that the federal government will act consistent with the state's program, and if we declare drilling offshore of our coast inconsistent with our program, like Florida and California have, the state can prevent new drilling leases.

To do that, Falgout said, the state must be willing to have its bluff called. State leadership would have to be prepared to deal with the impact of such a drastic measure in an economy dependent on the oil and gas industry, he said.

The state always has that tool, said Sidney Coffee, executive assistant to the Governor for Coastal Activities. Contrary to what some people may think, you can't just stop drilling, but the option is always available to the state to deny a lease on the grounds of consistency.

At issue is the federal government's method for distributing royalties production companies pay for the oil and gas extracted from federal lands. States that produce oil and gas on federal lands within their borders receive 50 percent of the federal royalties production companies pay for oil and gas production, except for Alaska, which receives 90 percent of the collected royalties.

Coastal producing states receive 27 percent of the royalties on production in areas next to the state's territorial limit, known as the 8(g) zone after the law defining those payments. For Louisiana, the 8(g) zone stretches from 3 to 6 miles beyond the coastline.

States receive no royalties for production beyond the 8(g) zone on the outer continental shelf. The $5 billion the Minerals Management Service collects each year from oil and gas production in the Gulf goes to the federal treasury and is the second-largest source of income for the federal government behind the Internal Revenue Service.

In recent years, the royalty split has taken on greater significance as oil and gas production in the Gulf of Mexico moves to deeper waters. The U.S. Department of the Interior's Minerals Management Service, the agency responsible for managing the country's mineral reserves, projects Gulf of Mexico oil production will increase by 43 percent in the next 10 years, mainly due to deepwater discoveries.

Twenty years ago, the state's revenues from onshore or near-shore production were significant, and the impact from outside of 3 miles was minimal, Falgout said. Now, that has flip-flopped in that the revenues have dwindled to next to nothing from onshore and near shore drilling and the impact from offshore drilling is huge.

In 2003, Wyoming received $503.4 million as its share of royalties from the MMS. Wyoming's share was about half of the nearly $1.1 billion distributed in 2003 to the 36 states producing oil and natural gas.

In contrast, Louisiana received just $31.5 million in royalties from the MMS.

Earlier this fall, Louisiana levee district officials urged Blanco to sue the federal government for a share of OCS royalties. Blanco asked Attorney General Charles Foti to review state options involving a lawsuit although the governor indicates she doesn't hold much hope a lawsuit would be successful.

In November, Blanco wrote to Mississippi Gov. Haley Barbour, Alabama Gov. Bob Riley, Texas Gov. Rick Perry and Alaska Gov. Frank Murkowski asking them to join her in efforts to change the royalty structure. Blanco plans to voice her concerns at a meeting of the National Governor's Association in February.

Our states provide the nation with its offshore oil and gas supply and play a key role in this country's economic and energy security, Blanco wrote. Like all other coastal producing states, Louisiana is proud to contribute to the energy needs of this great nation. There are costs, however, that go along with the national benefits we provide. But these are costs too great for any one state to bear alone, costs to our environment and costs to maintain onshore infrastructure that supports offshore energy activities.

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