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Is Blanco Bluffing?
By Don G. Briggs, President – LOGA (Louisiana Oil & Gas Association)

"Make no mistake: this is not an idle threat." These words of Louisiana Governor Kathleen Blanco bellowed memorably through the halls of the state capitol as she addressed lawmakers on the first day of the 2006 regular legislative session in Baton Rouge. She was referring to an announcement she had made in late January, and again at the annual meeting of the Louisiana Independent Oil and Gas Association (LIOGA), that she would exercise her option to object to future oil and gas lease sales in the Gulf of Mexico if the federal government didn't take seriously the state's revenue-sharing pleas.

Noting that "Louisiana is fighting for our fair share," Gov. Blanco added that "for the first time in more than a decade we are seeing signs of movement on this issue. The storms may have produced a small silver lining to the horrible tragedy we have just weathered. Perhaps the federal government will finally see the wisdom of giving us the revenues we deserve."

Blanco's position is crystal clear and is one that many of the state's leaders have been pushing for years. The difference now is that this storm-ravaged state has much higher octane (pun intended) in its tank to push for a bigger percentage of royalties from oil and gas drilled off the state's coast to pay for coastal restoration and hurricane protection.

The governor, of course, gained notoriety in the wake of Hurricane Katrina as one of the many local, state and federal leaders thought to have significantly dropped the ball (if not several) when it came to storm readiness and first response. She famously ordered National Guard troops to "shoot and kill" post-flood looters; her words and actions led Time magazine to label Blanco a "failure" in an article titled, "The Worst Governors in America." Blanco, wrote Amanda Ripley, "waited seven weeks to appoint a recovery commission. She was slow to call the legislature back into session to deal with a nearly $1 billion decline in tax revenue. Her suggested cuts – to education and health care – came under fire É as unrealistic."

Now with one post-hurricane Mardi Gras under its belt, Louisiana is contemplating new ways to boost its economy. Former U.S. Senator John Breaux also pushed for the revenue-sharing effort in the 32 years he served in Congress, and he says now that things look better than before for approving a split of the federal money.

U.S. Congressman Bobby Jindal did not skip a beat either in February, when he introduced new legislation designed to give Louisiana a fair share of energy royalties generated off its coast. He is quick to make note of the bell-ringing fact that Louisiana is ranked first in the United States in crude oil production, including the outer continental shelf (OCS), and second in natural gas production, including what is collected from the OCS.

According to Darren Goode's National Journal article, Jindal's bill grants states as much as 75 percent of the revenue gained from offshore drilling. The Republican representative "predicted that Bush administration officials 'very likely' will support giving states a guaranteed share of the revenue for new production that occurs in areas that are not now leased and where revenue is not projected by the Congressional Budget Office," noted Goode. "One energy lobbyist suggested that the funding would be couched as Ôcoastal impact assistance' rather than called Ôrevenue sharing,' to try to appease budget hawks."

Consider this: Western energy-producing states today receive more than 20 times what Louisiana does from federal mineral royalties for onshore mineral extraction. Louisiana has a very valuable coast (also referred to as a "working coast"), and while the Minerals Management Service has collected about $6 billion annually in oil and gas revenues from federal offshore leases in current years, about $3 billion came from offshore Louisiana.

I am not an historian, nor was I a player in the political scene back in the 1950s, but I want to offer a timeline and some background that may help explain the inequity the state says it faces, which a little research can provide.

Background. Louisiana's coastal region and wetlands provides storm protection for ports, pipelines, drilling slips and production facilities. Its subsurface salt domes store a significant portion of the nation's strategic petroleum reserve. Its LNG (liquefied natural gas) terminal is the site of one of the nation's major import facilities for natural gas, and LOOP (Louisiana Offshore Oil Port) is the nation's primary import terminal for foreign oil. Port Fourchon and Louisiana Highway 1 are located directly on the Gulf Coast, and the port is the primary source of domestic crude oil production in the United States. Five of the nation's top 15 largest ports are located in Louisiana. And here is yet another revealing fact: More than 30 percent of the nation's fisheries catch comes from offshore Louisiana.

Timeline. In 1920, the Mineral Lands Leasing Act provided 37.5 percent revenue sharing for states for mineral development on onshore federal lands. In 1976, the Act was amended to provide for 50 percent revenue sharing.

1945. President Truman gave the federal government jurisdiction over all offshore resources. Just about a decade later, the government began leasing those lands, charging companies from 12 to 16 percent royalty on what they produced. The Truman administration offered Louisiana control of the first three miles off its shores and a share of royalties beyond that. But the very colorful, outspoken and politically powerful Plaquemines Parish district attorney Leander Perez pressured the state to hold out for more, the deal fell through, and the state got nothing. I must add, "Judge Perez," as he is often referred to, would be considered by many to be in the "top five" of Louisiana most colorful politicians.

1953. Congress gave coastal states the rights to the waters up to three miles off their coasts. But here is how the numbers stacked up: Louisiana, 3 miles; Texas, 10.3 miles; Florida, 10.3 miles. Texas and Florida scored better because they established their boundaries before becoming states.

1986. States began collecting 27 percent of the federal royalties for production from three to six miles offshore to compensate for energy production from pools of fuel that may have been siphoned closer to shore. In Louisiana, this is known as the 8g Settlement, and the funds are lawfully earmarked for education.

Just last year, U.S. Senator Mary Landrieu and the state's congressional delegation managed to win federal approval for payment of $1 billion to energy-producing coastal states for four years, allowing Louisiana to receive $540 million that will be used for coastal impacts to communities that support activities of the industry. Sen. Landrieu now believes that since hurricanes Katrina and Rita, the need to restore Louisiana's coast and beef up its levee systems has become more apparent to the rest of the nation. She reminds Congress the Gulf Coast's recovery could be tied to a steady stream of revenues from the state's offshore production, much like compensation going to states with onshore drilling on federal lands.

Whose Fair Share?

Right now, support for this "fair share" plan is apparently growing far and wide. Gov. Blanco and her cabinet head, Department of Natural Resources Secretary Scott Angelle, moved quickly after the storms to invite board members and members of LIOGA and the Louisiana Mid-Continent Oil and Gas Association (LMOGA) to meet at the Governor's Mansion to seek backing of her plan. Both organizations have endorsed the state's efforts.

Additionally, Shell Oil, ExxonMobil, Chevron-Texaco and, since March, Duke Energy all have pledged their support to the state's promotional and awareness campaign, known as the America's WETLAND effort. This organization has recently presented a petition on its Web site (www.americaswetland.com) encouraging support of the state's effort to save Louisiana's wetlands, via email endorsement to members of Congress. At last count, some 38,000 people online had participated.

With all of that being said, Gov. Blanco's announcement to exercise her option to object to future oil and gas lease sales in the Gulf of Mexico if the federal government didn't take seriously the state's revenue-sharing pleas sent a chill throughout Louisiana's offshore oil and gas industry. What else could you possibly expect? "Will she really exercise her option?" is a question many asked, almost hoping not to find out. Some would say Gov. Blanco would be cutting off her nose to spite her face. Such a move would potentially hinder future offshore operations, crippling the vast infrastructure that supports Louisiana's offshore industry. So why would she pursue this? Or is it a bluff?

Indeed, "There's a danger in [Blanco's] strategy – setting the state to put payouts over principles. But it's understandable given the feds' failure to stand firm on royalties," noted a Sarasota Herald-Tribune article titled "Royal Foul-Up."

Living here in Louisiana and watching the politics of our state move through the halls of Washington, I would be a little cautious to call the governor's bluff. Then again, let's say it is not a bluff other than telling the nation that years ago our state got a bum deal on sharing in offshore revenues, which is vital to our country's energy security and Louisiana's delicate infrastructure. With supplies tightening and prices rocketing, what better time to get the ear of our nation than now?

As I see it, Blanco and Landrieu are two very bold women on a crucial mission, and their bottom line is this: "Give Louisiana and the other coastal states the same deal given to Western states in 1920." Both of these politicians share a deep and abiding love for their state and its people, its diverse cultures and its abundant natural resources. They will not let anyone they encounter forget that the state's history includes providing the nation with 80 percent of its offshore energy supply for many decades.




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