CHAPTER 5 FROM PRESIDENT TRUMAN TO GOVERNOR BLANCO: THE CONTINUING SAGA OF FEDERAL-STATE REVENUE SHARING
| Jurisdiction | United States |
(Feb 2007)
FROM PRESIDENT TRUMAN TO GOVERNOR BLANCO: THE CONTINUING SAGA OF FEDERAL-STATE REVENUE SHARING1
Attorney
Liskow & Lewis
New Orleans, Louisiana
JONATHAN A. HUNTER
Jonathan A. Hunter is a shareholder in the New Orleans office of Liskow & Lewis, where he is head of the firm's offshore oil and gas practice group.
He received his bachelor's degree from Yale University and his law degree from Louisiana State University Law Center, where he was Editor-in-Chief of the Louisiana Law Review and a member of the Order of the Coif.
He is an Adjunct Assistant Professor of Law at Tulane Law School, where he teaches basic Oil and Gas Law and a seminar on Federal Offshore Oil and Gas Law.
He has represented producers in more than one hundred administrative appeals of MMS orders, including orders to pay royalties, orders to pay civil penalties, and orders to comply with the agency's operational regulations. He has also represented producers in numerous judicial appeals of such agency orders. He was recently selected to be included in the 2007 edition of The Best Lawyers in America.
§ 5.01 Introduction
§ 5.02 Offshore
[1] The Tidelands Litigation and The Enactment Of The Submerged Lands Act and the Outer Continental Shelf Lands Act.
[a] Coastal State Leasing, The Truman Proclamation, And The California Decision.
[b] Enactment Of The Submerged Lands Act and the Outer Continental Shelf Lands Act
[c] Problems With Fixing The Boundary: Three Miles Or Three Leagues? Where Is The "Coastline"? What If The Land Changes?
[2] Addressing Drainage And Cooperative Development, And Increasing The Coastal State's Share Of Offshore Revenue Through Amendments To The OCSLA
[a] The Expansion Of The Rights Of Coastal States Affecting The Federal Offshore Leasing Program
[b] Section 8(g) of the OCSLA
[c] Section 5(j) of the OCSLA
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[3] Offshore Revenue Sharing In The New Millenium
[a] The Energy Policy Act
[b] Louisiana's Challenge To Lease Sale 200
[c] The Gulf of Mexico Energy Security Act
§ 5.03 Onshore
§ 5.01 Introduction
Among the many products of the disastrous hurricane season of 2005 was a renewed discussion of the rights of the coastal states to revenues generated by offshore oil and gas exploration and production. Coastal states, and Louisiana in particular, asserted that it was essential that they receive additional revenue (1) to remedy the effects of oil and gas exploration on their infrastructure, and (2) most importantly, to combat coastal erosion, which increasingly has exposed the states to the catastrophic effects of hurricanes. However, while the coastal states' claim for additional federal revenue may have increased in intensity after the 2005 hurricane season, the fact that the states were seeking additional revenue was nothing new. This was simply the latest stage of a debate that has been going on since the origins of the offshore oil and gas industry in the United States.
The purpose of this paper is to review the federal-state relationship with regard to the allocation to the states of revenues generated by federal oil and gas leases. Although the primary focus of this paper will be on the offshore federal leasing program, this paper will also discuss the division of revenues from oil and gas leases of onshore federal lands.
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§ 5.02 Offshore
[1] The Tidelands Litigation and The Enactment Of The Submerged Lands Act and the Outer Continental Shelf Lands Act.2
[a] Coastal State Leasing, The Truman Proclamation, And The California Decision.
The offshore story starts with the coastal states granting leases affecting water bottoms adjacent to state lands. In the 1920s and 1930s, California, Texas, and Louisiana granted hundreds of such state oil and gas leases. In 1938, the Louisiana Legislature enacted legislation asserting jurisdiction over submerged lands extending well into the Gulf of Mexico.3 In 1941, the Texas Legislature passed a similar act.4
Within the United States government, the executive and legislative branches did not see eye-to-eye on the states' assertion of jurisdiction over their coastal water bottoms. In 1945, President Truman issued a proclamation declaring that the United States had jurisdiction over natural resources of the subsoil and seabed of the Outer Continental Shelf.5 In 1946, Congress responded to the Truman Proclamation by passing "quitclaim" legislation that would have given the coastal states ownership of the seabed, but President Truman vetoed that legislation. Thereafter, over objections of both Congress and the United States Attorney General, President Truman authorized the United States the file a trespass action against the State of California, challenging California's right to grant oil and gas leases off of its coast. What is known as the "Tidelands Litigation" had begun.
In 1947, the United States Supreme Court rendered its seminal decision in United States v. California,6 holding in favor of the United States on the basis that the federal government had "paramount rights" to the marginal sea. Although the United States had filed suit against
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California asserting trespass, the Supreme Court held in favor of the United States without finding that the federal government actually owned the seabed - an unusual ruling in a trespass action.7 Rather, based on a series of "national" interests (e.g., security of its coastline, ensuring peace and participating in world commerce), the court found that the United States had "paramount rights" and therefore "full dominion of the resources of the soil under that water area, including oil."8
While California had asserted title to only 3.5 miles of the "marginal sea," Louisiana and Texas had asserted much more aggressive claims. In 1950, relying on its 1947 California decision, the Supreme Court rejected the claims of ownership by both Louisiana and Texas.9
[b] Enactment Of The Submerged Lands Act and the Outer Continental Shelf Lands Act
As a result of the Supreme Court's decisions in the California, Louisiana, and Texas cases, the states had no rights to explore for or produce oil and gas off of their coastlines, and the validity of hundreds of existing state leases was questionable at best. Consistent with its efforts of the mid-1940s, in 1953 Congress acted to rectify this situation. Through the Submerged Lands Act10 and the Outer Continental Shelf Lands Act11 (the "OCSLA"), Congress vested the coastal states with title to submerged lands within at least three geographic miles from their respective coastlines, and Congress "validated" as federal leases those state leases that had been granted over water bottoms that were now in federal waters beyond the limit of the granting state's submerged lands. Further, the Submerged Lands Act allowed each state with a coastline on the Gulf of Mexico to prove an entitlement to lands extending more than three miles into the Gulf, based on the state's "historical boundaries"; however, even if a state could prove an historical entitlement to more than three miles, the Submerged Lands Act limited a state to a maximum seaward boundary of three marine leagues (about 10 miles) from its coast.12
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[c] Problems With Fixing The Boundary: Three Miles Or Three Leagues? Where Is The "Coastline"? What If The Land Changes?
The OCSLA and the Submerged Lands Act intentionally left open two critical questions affecting the division of offshore oil and gas revenues: (1) does a state in the Gulf of Mexico have a claim to ownership of lands extending three leagues from its coastline based on historical boundaries?, and (2) where is the location of each state's "coastline"? In 1960, the Supreme Court resolved the first question, declaring that Texas and Florida (on Florida's gulf-side only) were entitled to three marine leagues from their coastlines, but that Louisiana, Mississippi and Alabama were only entitled to three geographic miles from their coastlines.13 Texas was entitled to three marine leagues, because Texas was able to demonstrate that it had asserted jurisdiction over such a distance when it was a sovereign nation prior to its admission to the United States. Florida was entitled to three marine leagues based on the Act of Congress pursuant to which Florida was admitted to the Union.14
With regard to the second question - the precise location of a coastal state's coastline - it would take another forty-plus years for that issue to be resolved in the Gulf of Mexico.15 Among the difficulties involved in "fixing" a state's coastline was the impact of ongoing changes to a state's coastline resulting from the forces of nature. In 1969, the Supreme Court rejected Texas's claim that the offshore federal-state boundary should be drawn from the location of Texas's coastline as it existed in 1845 when the state was admitted to the Union. Not only did Texas seek to protect itself against the effects of post-1845 erosion, but Texas also argued that a fixed coastline, rather than an "ambulatory" one, was essential to ensure that mineral operations could be conducted reliably. The Supreme Court referred Texas to Congress to resolve any such problems:
It is ... true that the use of the modern, ambulatory coastline as the baseline from which the limitation is measured will penalize Texas for post-1845 erosion and may present practical difficulties for mineral lessees. But any alleged inequitable results, as well as any alleged detriment to orderly mineral development, derive from a consistent reading of the scheme Congress fashioned; thus Texas must look to Congress for relief. 16
In response to this problem, in 1986 Congress amended the definition of the term "boundaries" in the Submerged Lands Act to "immobilize" the seaward boundaries of the coastal states:
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