2010 Offshore Oil Drilling Legislation

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Offshore oil rig

2010 Oil Drilling Legislation

Offshore drilling continues to produce conflict as states balance environmental protection with economic development. Some states have banned drilling, while others permit oil drilling off their coastlines to encourage economic development, and state governments often receive significant tax revenue benefits.

A number of coastal states are considering legislation in response to the April 2010 explosion of British Petroleum Deepwater Horizon offshore drilling rig. Louisiana, North Carolina, New Jersey and South Carolina have introduced bills relating to oil spill clean up plans, recovery for damages and moratoriums on offshore drilling.

Clean Up Plans

Louisiana introduced and adopted a bill which requests the state and federal government to encourage all entities involved in the environmental clean up effort to utilize Louisiana citizens during the rehabilitation of the Gulf of Mexico. South Carolina has adopted one bill and has one pending bill that both request the department of health and environmental control and the department of natural resources to immediately begin developing a contingency plan in the event the oil leaking from the Deepwater Horizon reaches the state’s waters and coastline.

Recovery for Damages

North Carolina has two pending bills that remove the cap on the total recovery by the state for damages to public resources and for the cost of clean up arising from a discharge. The bills also direct the coastal resources commission to conduct a review of the environmental and economic effects of recent spills on the gulf coast region.

Moratoriums and Bans

Louisiana has adopted legislation that requests the Secretary of the Interior to reconsider the six-month moratorium on oil and gas exploration in the Gulf of Mexico in order to minimize the negative economic impact on Louisiana and the other oil and gas producing states’ economies along the Gulf of Mexico.

New Jersey has two pending pieces of legislation. The first bans offshore drilling in state waters and prohibits the Department of Environmental Protection from issuing offshore drilling permits. The other urges the federal government to ban offshore drilling for oil and natural gas off of New Jersey’s coast.

Prior to the rig explosion, five states had introduced bills that would either permit or prevent drilling on their coastlines. Most states that introduced these bills favored allowing drilling offshore, many in return for revenues.

South Carolina’s pending bill requires anyone permitted to drill offshore within state waters to provide a portion of the lease or royalty payments to help fund the state’s transportation infrastructure. A portion also must go toward preservation and enhancement of the state’s natural resources. South Carolina also is considering two other bills that would allow oil drilling off its coast. The first allows anyone who demonstrates “economic viability” to drill for and produce oil offshore. The second allows offshore exploration, drilling and production of oil and gas in the portion of the Atlantic Ocean that is within the state’s jurisdiction.

Virginia has considered two pieces of legislation, one of which was enacted. House Bill 756 requires that a percentage of offshore natural gas and oil drilling revenues and royalties go to the Transportation Trust Fund, the state Coastal Energy Research Consortium and localities for improvements to infrastructure and transportation.

California is considering legislation that would create a board to approve oil or gas extraction from lands in the State Coastal Sanctuary. Louisiana is reviewing a bill that urges Congress to end the outer continental shelf moratorium on oil and natural gas exploration and production.

Conversely, New Jersey introduced legislation opposing offshore oil drilling. The pending legislation prohibits the state Department of Environmental Protection from issuing permits or approving activities associated with offshore drilling for oil or natural gas.

Offshore Oil Drilling Laws

Some of the most interesting state offshore oil drilling laws focus on liability issues, drilling prohibitions and taxes on offshore drilling. Laws in California, North Carolina and Texas make any responsible party liable for an oil spill. California’s law makes a responsible party liable for the discharge of oil into marine waters from sources such as oil rigs and platforms. A responsible person is not liable, however, if the discharge is due to an “act of God” or is authorized by a state or federal permit. North Carolina’s law makes a responsible party strictly liable for all clean up and removal costs that arise from the discharge of oil into coastal fishing waters or offshore waters from offshore wells, rigs and platforms. Texas’ law makes any person responsible for an actual or threatened unauthorized discharge of oil from an offshore drilling or production facility liable for all response costs.

Florida and Virginia prohibit drilling along their coastlines. Florida does not allow permits for or construction of structures intended for oil drilling within one mile of the seaward boundary of any state, local or federal park or aquatic or wildlife preserve. Virginia prohibits drilling for oil in the waters of the Chesapeake Bay or any of its tributaries. Those who want to drill in a prohibited area, however, may apply for a permit by submitting an environmental impact assessment to the Department of Mines, Minerals and Energy.

Alabama and Florida tax offshore drilling. Alabama collects tax from any party drilling for oil in the waters of the state. The amount of the tax is measured at 8 percent of the gross value of the oil at the point of production. The tax on offshore production produced from depths greater than 8,000 feet below sea level is not computed as a percentage of gross value, but as a percentage of gross proceeds. Florida imposes a coastal protection tax on each barrel of pollutants produced in Florida or imported into the state. If a discharge of catastrophic proportions occurs, the secretary of environmental protection may increase the excise tax for a period of time.