Louisiana Coastal Hurricane Fix Stymied by U.S. Holdup on Oil-Backed Debt

The federal government’s failure to write rules for offshore-drilling payments is blocking Louisiana from borrowing as much as $1 billion to fix a coastline ravaged by two hurricanes and the largest U.S. oil spill.

Louisiana, with the most U.S. offshore drilling rigs, according to oilfield-services company Baker Hughes Inc., needs cash to build protective levees, restore beaches and divert water to freshen swamps. To raise funds, Governor Bobby Jindal’s administration is considering selling bonds backed by money from the Gulf of Mexico Energy Security Act or using it for a federal loan, the state’s coastal authority says in its annual plan.

Yearly payments to the state from new drilling regions opened by the security act may be as much as $200 million by 2017, the coastal plan says. No bonds backed by the money can be sold unless the Interior Department clarifies when and how the royalties will be paid, the plan says, something the four states covered by the act have been seeking for more than a year.

“We can’t wait until 2017 to begin drawing this money to fix our coastline,” Charlotte Randolph, president of Louisiana’s Lafourche Parish, told a conference of the Southern Municipal Finance Society in New Orleans on Nov. 10. “It’s a substantial amount of money and will help rebuild Louisiana.”

The projects are needed after Hurricanes Rita and Katrina caused an estimated $85 billion of damage to Gulf of Mexico states in 2005 and claimed about 1,200 lives, according to the National Hurricane Center. The coast took another blow on April 20 when BP Plc’s Macondo drilling rig exploded and spilled about 5 million barrels of oil into the Gulf over 87 days.

Spending Cuts

Louisiana needs $1.6 billion of spending cuts to balance its fiscal 2012 budget, Paul Rainwater, chief administrative officer, said at the conference. It’s looking for the royalty- backed bonds to create a “surge” in funding for coastline restoration, the 2011 report says.

“Early access to this sort of funding is a key component of our coastal plan,” Garret Graves, chairman of the Coastal Protection and Restoration Authority, the office handling the financing, said in an e-mail.

The 2006 Gulf security act, known as Gomesa, was sponsored by Louisiana Democratic Senator Mary Landrieu and Pete Domenici, the former Republican senator from New Mexico. The act opened 8.3 million additional acres of the Gulf of Mexico to oil and gas production and allots 37.5 percent of federal revenue from new drilling leases to four coastal states.

Louisiana’s Jindal, Mississippi Governor Haley Barbour, Texas Governor Rick Perry and Alabama Governor Bob Riley asked the Interior Department to clarify the rules for Gomesa payments in September 2009.

‘Prompt’ Response

The department will address their questions “promptly,” the governors were informed in a December 2009 letter from Wilma Lewis, assistant interior secretary for land and minerals management.

Louisiana’s coastal authority was told regulations would be ready this month, Andrea Taylor, a department spokeswoman, said in an e-mail. That timeframe “seems unlikely” now, she said, since the coastal authority hasn’t seen draft regulations.

Landrieu’s office is also pushing for rules to be released, said a spokesman, Aaron Saunders.

“The whole goal is to get coastal-restoration projects under way as soon as possible,” he said in a Nov. 24 e-mail.

The Interior Department doesn’t “have a final completion date at this time,” Jordan Montoya, a spokeswoman, said by e- mail. She said the department is working on the rules and offered no details.

Lone State

Alabama isn’t currently planning to sell bonds backed by Gomesa payments, Todd Stacy, a spokesman for Riley, said in a telephone interview. Mississippi doesn’t plan a sale “at the moment,” Laura Hipp, a Barbour spokeswoman, said in an e-mail. Texas has no plans for one, Jim Suydam, a spokesman for the General Land Office, said by e-mail.

Full implementation of Louisiana’s restoration plan is expected to cost “tens of billions” of dollars, said Taylor, the coastal office’s spokeswoman. Work valued at almost $17 billion is under way, funded mostly by federal grants, state mineral revenue, taxes on land-based oil and gas production and through budget surpluses in 2007-2009, the coastal plan says.

Projects include levees and floodwalls to be completed by next year to protect half the coastal population from severe hurricanes, according to the plan. At least one program -- funds for municipalities to protect wetlands -- has been placed on hold awaiting more Gomesa funds, the report says.

Gomesa Money

Louisiana began getting Gomesa money from a share of 2007 Gulf drilling bids, rentals and production royalties, according to the Interior Department’s website. The amounts are small compared with the cost of work needed, with the $699,757 expected this year by the coastal authority projected to fall to $326,400 in fiscal years 2012 and 2013, the 2011 plan says.

In 2017, when the federal government includes funds from additional oil and gas leases, the amount will rise to as much as $200 million a year, the coastal authority projects. The payment will be affected by prevailing oil and gas prices and production levels, Dek Terrell, who teaches economics at Louisiana State University in Baton Rouge, told a March meeting of the coastal authority.

The pace of permits granted for Gulf drilling may also influence Gomesa income. The Obama administration has been issuing fewer rights even after it lifted a deepwater-drilling moratorium on Oct. 12 that followed BP’s oil spill.

“The slowdown in activity is going to have a definite impact on production,” Don Briggs, president of the Louisiana Oil and Gas Association, said in a telephone interview. “Less production will mean lower revenues.”

Accelerated Payments

Landrieu introduced legislation after the BP oil spill to accelerate the time when additional lease revenue is included in Gomesa payments. She also proposed a law to use at least 80 percent of the penalties charged to BP under the Clean Water Act for coastal restoration. The fines may be as much as $21 billion, based on an expert panel’s Aug. 2 estimate of the amount of oil spilled.

Meanwhile, Louisiana’s coastal authority is looking beyond Gomesa. It’s considering debt backed by future Clean Water Act fines and selling greenhouse-gas credits, Graves said.

“The solutions we develop and implement in coastal Louisiana will have worldwide application,” he said by e-mail.

To contact the reporter on this story: Simone Baribeau in Miami at sbaribeau@bloomberg.net.

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net.

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