In a bid to increase federal income, President Trump's FY2018 budget plan proposes to stop sharing revenue payments from Gulf Coast offshore oil and gas to Texas, Louisiana, Alabama, and Mississippi.
On the off chance that this plan is approved, the next 10 years could see these four states lose billions of dollars worth of revenue-sharing payments from oil and gas developments close to their shores, which they are currently planning to use for land reclamation and environment protection. The plan drew criticism not only from elected politicians from the Gulf Coast states, but also from the oil and gas industry.
The proposal for the U.S. budget for fiscal year 2018 includes a plan to repeal the Gulf of Mexico Energy Security Act of 2006 in order to redirect revenue-sharing payments that were set to be paid to these states to the federal tax payer. Under the Act, states and their local jurisdictions receive 37.5 percent of Federal Outer Continental Shelf (OCS) revenues generated from certain leases. The Act has deferred most payments until 2018, so the states have yet to begin receiving these funds. According to estimates in the budget plan, by scrapping payments to states, the federal savings would amount to US$1.685 billion between 2018 and 2022, and a total of US$3.56 billion between 2018 and 2027.
The proposal to stop revenue sharing was met with angry reactions from the industry, environmental organizations, and Democrat and Republican governors and senators.
National Ocean Industries Association (NOIA) criticized the proposal for repealing the revenue sharing program. "Eliminating Gulf state revenue sharing for offshore energy production would punish coastal states that support and host the development of home-grown energy and jobs, and would be a serious step backward in the quest for energy reliability and independence," NOIA President Randall Luthi said in a statement.
Wildlife and environment preservation organizations also voiced disapproval, and urged Congressional leaders "to fight this proposal with everything they can". Louisiana Gov. John Bel Edwards, a Democrat, also criticized the plan. He remarked that "this budget robs Louisiana of financial resources promised to us for coastal restoration. In recent years, Louisiana and waters just off its shore have been the second largest producer of crude oil and natural gas in the nation".
US Senator Bill Cassidy, MD (R-LA) also slammed the proposal, saying in a statement, "There are deal breakers for me in the current budget. For one, this budget fails to prioritize restoring Louisiana's eroding coasts… As the committee process moves forward, I will not only oppose cuts to the revenue sharing program but continue to work to expand it for the gulf coast."
House Majority Whip Steve Scalise (R-LA), while commenting that the budget is balanced, also referred to the revenue sharing program in his statement. He assured voters that he "will also be working to ensure that any budget we pass in the House addresses the priorities important to Louisiana, including fiscal responsibility, increased energy production and the revenue sharing that goes along with it, so we can strengthen our energy security while also restoring our eroding coast."
Still, the plan to scrap the oil royalty payments, as well as the budget draft, need to pass Congress vetting, and expectations are that stopping revenue sharing with the Gulf Coast states would face fierce opposition.
President Trump's other oil and gas related requests in the budget—to sell half of the U.S. strategic petroleum reserve (SPR), and to open the Arctic National Wildlife Refuge to oil and gas drilling—would likely face opposition, too.
President Trump's plan to scrap revenue-sharing payments is not new: President Obama, too, tried to cut the royalties to Gulf Coast states from offshore drillers near their coastline. At the time, state governments put up fierce opposition, and this is likely to repeat now.
By Tsvetana Paraskova for Oilprice.com
