Fill Virginia's Coffers with Royalties from Offshore Drilling? Maybe Not

By way of disclosure, let me first of all say that I am a half-hearted advocate of offshore drilling. I've been there, and my experience has been that, overall, it's clean and safe. When people think of big oil spills, the ones that come to mind are things like the Exxon Valdez, which was, in fact, a transportation (tanker) accident, not a drilling accident. There hasn't been a major oil blowout in U.S. waters since 1969. This is not to say that drilling and production accidents don't happen, or that these activities have no environmental impact. I'm just saying that they're generally clean and generally safe. Go ahead and argue with me, but that's not the point of this post.

The point of this post is that some people are arguing for drilling off of Virginia's shoreline because they think the Commonwealth will benefit from offshore "royalties". This is not the case. The only way Virginia could benefit directly from royalty payments for oil or gas production is for Congress to take action to authorize revenue sharing in the Atlantic. Let me explain. Virginia's state waters only extend out three miles from the coastline. Within those three miles, Virginia has complete control over drilling and production; it can set its own regulations and royalty rates. Payments would come directly to the Commonwealth with no federal involvement. As a point of interest, no wells have ever been drilled in Virginia state waters and no one is considering drilling any. The area does not seem to be prospective, from a geological standpoint.

From three to six miles out from shore is the "8-g zone" of federal waters, where the federal government is bound by the Outer Continental Shelf Lands Act (section 8g of the Act, to be specific) to share 27% of receipts with nearby coastal states. "Receipts" actually include lease bonuses, rents, and royalties, even though we usually just say "royalties". Again, no wells have ever been drilled in Virginia's 8g zone, and no one seems interested in drilling there, again for reasons of geological non-prospectivity.

Beyond six miles, federal waters continue out to the edge of the Exclusive Economic Zone, about 200 miles out. The federal government has no obligation to share revenue with states in this area, at least not in the Atlantic. Virginia's legislated offshore policy asks that no leasing occur or wells be drilled any closer than 50 miles from shore. The Minerals Management Service, in developing its five-year leasing program, honored this request and is therefore only considering leasing areas beyond 50 miles from shore. The bottom line is that, as things stand now, Virginia is not entitled to any revenue from leasing or drilling in federal waters off its shores.
The Gulf of Mexico is different, being covered by the Gulf of Mexico Energy Security Act of 2006, which amended the Outer Continental Shelf Lands Act to require sharing of federal revenues with adjacent coastal states, but just in the Gulf. A similar piece of legislation for the Atlantic would be required for Virginia to ever share in offshore royalty payments. Senators Warner and Webb introduced such a bill, but it has never made it out of the Senate Energy and Natural Resources Committee.

There may be many reasons to drill offshore of Virginia, but royalty payments to the Commonwealth is not one of them.