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Will proposed oil drilling rules cut coastal cash?

By:  Jacob Batte,


Industry advocates and politicians say they are concerned that newly proposed federal rules aimed at making offshore drilling safer could cut the amount of oil revenue headed to Louisiana for coastal restoration.

The U.S. Interior Department published the so-called well control rule last week, nearly six years after the catastrophic blowout of a BP well off Louisiana killed 11 workers and dumped millions of gallons of oil into the Gulf of Mexico.

The agency will collect public input for 60 days then consider any changes. Officials have not set a time line for enacting the rule.

Industry interests contend the rule may reduce revenue payments from the Gulf of Mexico Energy and Security Act, a federal law that will soon channel hundreds of millions of dollars from drilling in federal waters to four Gulf states, including Louisiana.

Simone Maloz, executive director of Restore or Retreat, a local coastal advocacy group, said for the first time she had heard that GOMESA dollars could be negatively impacted by the regulations.

“We always assumed it would fluctuate higher, not the other way around,” she said Friday.

A study published earlier this year by Wood Mackenzie, an international energy research and consulting firm, estimates that by 2030 exploration will drop by 55 percent and production by 35 percent if the well control rule is enforced. Between 105,000 and 190,000 jobs would be lost, mostly in Louisiana and Texas.

Assuming $80 per barrel for oil — it’s now trading around half that price — the study estimates $70 billion in lost tax revenue.

The Gulf Economic Survival Team, a group that touts the importance of the oil and gas industry to south Louisiana’s economy, commissioned the Wood Mackenzie study.

Lori LeBlanc, the group’s director, said the report shows “how far off the mark” the Interior Department’s economic analysis was when it crafted the new rule.

During a discussion at Port Fourchon earlier this month, U.S. Rep. Tom Reed, R-N.Y., told local officials he was frustrated that national environmental groups hadn’t led the charge against the well-control rule because it had the potential to decrease offshore revenue.

The rule calls for stricter design requirements and operational procedures for oil well blowout preventers, a safety device whose failure was cited as a major cause of the BP spill. The proposed rule also includes reforms to well design and control, real-time well monitoring, third-party inspections and oversight for some of the processes used in deepwater drilling.

Under GOMESA, passed by Congress in 2006, 50 percent of offshore drilling revenue from the Gulf’s federal waters goes to the U.S. Treasury. Another 37.5 percent is divided among Alabama, Louisiana, Mississippi and Texas. The remaining 12.5 percent is allocated to the Land and Water Conservation Fund for use on environmental research and projects.

Between 2009 and 2014, the four states have received about $34 million. Louisiana received the largest portion, $10.7 million.

But those payments are expected to increase dramatically starting next year. The total is capped at $500 million annually.

Under the law’s second phase, $375 million will be directed to the Gulf states and $125 million to the Conservation Fund. Of that, Louisiana expects to receive about $170 million annually, with $30 million for coastal parishes such as Lafourche and Terrebonne.

A 2006 state constitutional amendment locks the the revenue Louisiana receives into coastal restoration work.

State officials are relying on GOMESA dollars and the court settlement with BP over the 2010 oil spill to help pay for the Louisiana’s Coastal Master Plan. Together, they are projected to send about $700 million annually to the state.

Louisiana’s two U.S. senators, Republicans Bill Cassidy and David Vitter, have tried to raise the cap to $1 billion.

Cassidy has raised the issue about how the regulations could affect GOMESA revenue, noting that the rule could have “unintended consequences.”

“This is an extremely complex and technical issue, and I am concerned that the intent of many portions of this proposed rule do not match the desired goal of improving safety,” Cassidy said in a written statement after the well control rule’s release. “The way the rule is proposed appears to prioritize speed and deadlines over long-term safety. The administration needs to address the geological and engineering concerns raised and continue to work with stakeholders to get this right.”