Federal Offshore Oil & Gas Revenues

• Categories of Federal Offshore Mineral Revenues
• Amount of Federal Offshore Mineral Revenues (1953-2000)
• Uses of Federal Offshore Mineral Revenues
• Revenue-Sharing with State and Local Governments

Categories of Federal Offshore Mineral Revenues

The United States government owns both surface and subsurface rights of the nation's Outer Continental Shelf (OCS). The government leases portions of the OCS lands to private-sector enterprise for the purpose of developing minerals. This leasing and development generates four specific categories of revenue for the Federal government.

• Bonuses: Revenue received from the initial sale of OCS leases through competitive bidding among qualified U.S. enterprises. This category accounts for 46% of the Federal government's OCS revenues.
• Rents: Revenue received annually for each OCS mineral lease not in production. This category accounts for 2% of the Federal government's OCS revenues.
• Royalties: Revenue received for all minerals produced from the OCS, based on both the volume of production and sales value.
• Other: Revenue received such as settlement payments, gas storage fees, and other fees. Also includes minimum royalties, which are annual payments on a per-acre basis required to maintain the rights to a lease until production exceeds a minimum value.

Amount of Federal Offshore Mineral Revenues (1953-2000)

Not yet available by individual states.

* OCS lands in the Gulf of Mexico that are situated too far from the coast to identify with any individual coastal state.

* OCS lands in the Gulf of Mexico that are situated too far from the coast to identify with any individual coastal state.

* OCS lands in the Gulf of Mexico that are situated too far from the coast to identify with any individual coastal state.

* OCS lands in the Gulf of Mexico that are situated too far from the coast to identify with any individual coastal state.

* OCS lands in the Gulf of Mexico that are situated too far from the coast to identify with any individual coastal state.

Uses of Federal Offshore Mineral Revenues

The majority of Outer Continental Shelf revenues are deposited in the Treasury for discretionary use in funding Federal programs and reducing the deficit. Additionally, certain amounts have been earmarked for specific funds as follows:

• Land and Water Conservation Fund. The United States enacted the Land and Water Conservation Act in 1965 to support development of parks and other public recreational resources via two programs: (1) it contributes to the purchase of Federal park, conservation, and recreational areas, and (2) it provides 50% matching grants to states and territories for planning, acquisition, and development of public outdoor recreational areas and facilities. The Land and Water Conservation Fund is authorized for $900 million annually, of which over 90% comes from OCS revenues. However, Congress typically appropriates only a fraction of the authorized money and did not appropriate any money for the State Grant Program in fiscal years 1996-2000.

• National Historic Conservation Fund. Beginning in 1976, the United States amended Federal law (Title 16, USC, Sec. 470h et. seq.) several times for the purpose of depositing OCS revenue into the National Historic Preservation Fund. The fund received $24.4 million in 1977 from OCS revenues; $100 million annually in 1978 and 1979; and $150 million annually between 1980 and 1997. No OCS revenues have been deposited into the Natural Historic Conservation Fund since 1998. When it was active, the fund provided 50% matching grants to states and territories to preserve historic sites and buildings.

• Beaufort Sea Escrow (Section 7) Funds. Enactment of Public Law 100-102 in 1987 allocated $322.9 million to Alaska in fiscal year 1988 and, subsequently, $3.7 million in rents.

• Section 8(g) Funds. Amendments to the Outer Continental Shelf Lands Act in 1978 and 1985 enabled a "fair and equitable" sharing of revenues generated from leasing and development of OCS lands within 3 miles of state coastal waters after 1978, as described in more detail below.

Revenue-Sharing with State and Local Governments

In 1945, President Truman proclaimed that the United States, and not the coastal states, had jurisdiction, control, and power of disposition over the natural resources of the Outer Continental Shelf. Since then, several bills have been introduced in many sessions of Congress to settle jurisdictional matters between the Federal government and coastal states over offshore lands, including the equitable sharing of benefits derived from such development.

Coastal Energy Impact Program (CEIP)

The first enactment of revenue-sharing legislation was the inclusion of the Coastal Energy Impact Program (CEIP) in the Coastal Zone Management Act in 1976. The CEIP provided grants, loans, and loan guarantees to assist coastal states with costs of public services, infrastructure, and preventing or ameliorating the loss of valuable environmental or recreational resources caused by coastal and OCS oil and gas development. Allocation of funds under this program to individual states was based on the amount of OCS acreage leased for oil and gas development (50% weight), volume of oil and gas produced offshore each state (25% weight), and volume of oil and gas first landed in each state (25% weight). The Reagan administration stopped funding the CEIP and Congress repealed the program in 1990.

The CEIP has since been characterized as not being a pure revenue-sharing program. Allocations were based on OCS activities adjacent to each state; however, the program’s funding was dependent upon annual Congressional appropriations, thereby limiting the amount of funds authorized each year to implement the program.

Section 8(g) Revenues

Amendments to the Outer Continental Shelf Lands Act in 1978 enabled a "fair and equitable" sharing of rents, revenues, and royalties with adjacent states. The sharing applied to leasing and development of Federal tracts that were leased after 1978 and located within three miles seaward of state waters. These amendments responded to contentions and court challenges brought by coastal states that:

1. Oil reserves developed immediately seaward of state waters also drained state oil reserves.
2. Infrastructure required for offshore development caused impacts onshore.
3. Oil and gas extraction in state waters enhance the bids offered for adjacent federal leases.

However, the affected coastal states and the Federal government could not agree on the latter two concepts, exactly how much OCS revenue constituted a fair and equitable allocation to the coastal states. The Federal court required the federal government to set the rents and royalties aside in an escrow account until the matter was decided. Congress and the Reagan administration resolved the issue in 1986, allocating $1.7 billion of the escrow account to seven coastal states, plus 27% of bonuses, rents and royalties earned in the future from 8(g) leases. The federal government also made annual settlement payments to the affected coastal states for a total of $650 million between 1986 and 2001.

Revenue-Sharing Pursuant to the OCS Lands Act

Alaska’s escrow disbursement consists of a 1986 Section 8(g) disbursement of $51,000 and a 1988 Section 7 disbursement of $322,900,000. This table was originally prepared by the Minerals Revenue Management Division of the Minerals Management Service.

Notably, the Section 8(g) amendments to the Outer Continental Shelf Lands Act did not set any restrictions on the states regarding their use of these funds nor require the states to share this revenue with local governments impacted by OCS oil and gas development.

Between 1985 and 2001, California enacted three bills to allocate a portion of such revenues to impacted coastal counties and cities. All three bills authorized local recipients to use the funds for OCS-related activities, such as planning, infrastructure, public services, and mitigation, and enhancement of coastal resources. Two of the three bills also required local matches, regardless of the extent of OCS impacts each county incurred.

• In 1985, State Senator Gary Hart authored Senate Bill 959, which was signed into law that same year, codifying the Coastal Resources and Energy Assistance Act (PRC Section 35003). The Act resulted in a block grant program of $25 million to coastal counties impacted by offshore oil and gas development, plus a competitive grant program of $10 million to coastal cities so impacted. Another $3 million was distributed to the Local Marine Fisheries Impact Program, to the Coastal Commission, and for administrative costs. Counties were not required to provide any matching funds to be eligible for grants, but rather demonstrate adverse effects of offshore oil and gas development. Santa Barbara County, which has the lion’s share of 8(g) leases off its coast, received $5 million. Cities within Santa Barbara County received another $3,137,300.

• In 1991, Assemblyman Farr authored an amendment to the Coastal Resources and Energy Assistance Act with Assembly Bill 205. This bill changed the original act in two notable ways. First, it changed the allocation of Section 8(g) revenue to a competitive grant program for coastal counties and cities alike. Second, it limited the funding to only 50% of the total cost of the projects awarded grants, requiring the locals to come up with the other 50%. The affect of these changes proved moot, however, for the Legislature never appropriated money to implement the amended grant program.

• In 1996, Assemblyman Brooks Firestone and State Senator Jack O’Connell again authored amendments to the Coastal Resources and Energy Assistance Act with Assembly Bill 1431. This bill retained the competitive status of the grant program, but reduced the required match by coastal states and cities from 50% to 10%. It also targeted 50% of 8(g) revenue paid to California above 1996 levels. It applied to the last five years of settlement payments to California. Santa Barbara County, including cities located in the County, received a total of 79 grants between 1997 and 2001 for a total of $7,765,361 .

Disposition of California Section 8(g) Funds (1985-2001)

Non-8(g) Revenues

Since 1991, Congress has periodically considered proposed legislation to allocate Federal revenue earned from non-8(g) leases (that is, those OCS leases not subject to the revenue-sharing provisions of Section 8(g) either because they were leased prior to 1978 or because they are located further than 3 miles from state waters). In 1999, 2000, and 2001, Congress considered several bills that addressed disposition of OCS revenues. Some of these bills proposed a Conservation and Reinvestment Act (CARA), which would allocate as much as $3.9 billion in OCS revenues annually. Congress will likely consider CARA again in 2002. Readers should see H.R. 701 for the version of CARA introduced by Representative Don Young of Alaska and passed by the House of Representatives’ Natural Resources Committee in 2000. Two Senate versions include S. 1318 and S. 1328, introduced by Senator Frank Murkowski of Alaska and Senator Mary Landrieu of Louisiana, respectively.

The proposed CARA legislation has two-to-three competing versions; however, all address allocating a portion of OCS revenue – as much as $1 billion annually – to coastal states as impact assistance. The allocation would occur via formula that weighs the importance of each state’s population, shoreline length (or amount of coastal-zone land), and proximity to eligible OCS oil and gas leases. In a marked departure from Section 8(g) revenue-sharing, all versions of CARA direct a precise amount of each state’s share to coastal counties, also taking population, shoreline length, and proximity to eligible OCS into account. This departure is aimed at ensuring that a fair portion of revenues are directed to local communities that burden the brunt of adverse impacts from offshore oil and gas development.

Most versions are careful to avoid provision of economic incentives that would encourage new oil/gas leasing or development of OCS lands. For example, CARA’s sharing of revenues for purposes of coastal impact assistance in areas subject to moratoria, such as California, would be limited to eligible leases in production at the time of the legislation’s passage.

In late 2000, Congress amended the Appropriations Bill for the Commerce Department, enacting a substantially smaller version of CARA’s Coastal Impact Assistance Program. This legislation, called the 2001 Coastal Impact Assistance Program, directs the allocation of $150 million to the seven coastal states that are adjacent to OCS leases (Alabama, Alaska, California, Florida, Louisiana, Mississippi, and Texas). In turn, 35% of each state’s share is allocated to coastal counties based on their population (25% weight), shoreline miles (25% weight), and proximity to eligible OCS leases (50% weight). Santa Barbara County anticipates receipt of approximately $1.2 million in early 2002 from this allocation.

 

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